The Great Depression

The Great Depression of the 1930s was the most catastrophic economic crisis of modern times. Although it began in the United States, it swept quickly through most of the industrial world and created untold misery to millions of people. It also created political and social instability and contributed significantly to the coming of World War II. Although the Depression has received enormous attention from historians, economists, and many others, there is still no consensus on the two major questions that the crisis raises.

What caused the Great Depression? And why did it last for so long – despite the earnest and often creative efforts of two American presidents over nearly thirteen years? These are the questions this essay addresses, even though the answers to them remain contested and in many ways elusive.

One of the most famous and influential studies of American life in the prosperous 1920s was Middletown, a sociological study by Robert and Helen Merrell Lynd. They spent several months in Muncie, a mid-sized industrial city in Indiana, and tried to draw conclusions about how people lived in what they considered a “typical American city.” They came away from Muncie convinced that the life of the city had been transformed in the space of a generation by economic growth; that, for better or worse, Muncie had entered the age of abundance and consumption and had embraced a new set of values and assumptions that were in accord with the broad, if uneven, prosperity of their time.

Ten years later, in 1935, the Lynds went back to Muncie to prepare a sequel to Middletown, a book they entitled Middletown in Transition. They began their book by describing how the Depression had affected the community. They wrote:

The city had been shaken for nearly six years by a catastrophe involving not only people’s values but, in the case of many, their very existence. Unlike most socially generated catastrophes, in this case virtually nobody in the community had been cushioned against the blow; the great knife of the depression had cut down impartially through the entire population, cleaving open the lives and hopes of rich as well as poor. The experience had been more nearly universal than any prolonged recent emotional experience in the city’s history; it had approached in its elemental shock the primary experiences of birth and death.

The Lynds exaggerated, perhaps. But they were not alone. John Maynard Keynes, was asked at one point if he was aware of any period in history comparable to the Depression. He answered (hyperbolically): “Yes, it was called the Dark Ages and it lasted 400 years.”

The crisis of the 1930s was the first economic collapse to be called a “depression.” In the past, similar collapses had been called “panics”; and in the first years of the crisis, President Herbert Hoover tried to calm public fears by using a different, presumably gentler term. “Depression,” he thought, sounded less alarming. But to the public, which quickly adopted the term, and to later generations, the word “Depression” had no gentle or calming connotations. It came to be a reference to something far more severe, far more catastrophic than ordinary economic problems. It is almost impossible to describe the impact of the Great Depression in any terms that can convey its immensity and its pervasiveness. Figures are inadequate for the purpose, but a few of them provide at least a beginning of an understanding of the nature of the crisis in the United States:

• –. The Gross National Product, the fundamental measurement of economic activity, declined 25 percent in three years beginning in 1929, many times the rate of decline in any previous or subsequent recession.

• –. Investment, the most important source of economic growth, virtually ceased altogether in the same period. There was a net disinvestment: new investment was less than the depreciation of existing facilities.

• –. Consumer prices fell 25 percent between 1929 and 1933; wholesale prices fell 33 percent.

• –. Unemployment rose from under 2 percent in the late 1920s to what some believe was as much as 25 percent in 1932. The number of unemployed rose from under 1.5 million...