effects of economic depression

Definitions[edit source]
In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions.[1] Generally, periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology (potential output).[2] Another proposed definition of depression includes two general rules:[3][4]
1. a decline in real GDP exceeding 10%, or
2. a recession lasting 2 or more years.
Notable Depressions[edit source]
Great Depression[edit source]
Main article: Great Depression
The best-known depression was the Great Depression, which affected most national economies in the world throughout the 1930s. This depression is generally considered to have begun with theWall Street Crash of 1929, and the crisis quickly spread to other national economies.[9] Between 1929 and 1933, the gross national product of the United States decreased by 33% while the rate of unemployment increased to 25% (with industrial unemployment alone rising to approximately 35% – U.S. employment was still over 25% agricultural)[citation needed]. The probable causes of the Great Depression include the loose money policies of the Federal Reserve during the latter 1920s and the consequent misallocation of capital based on easy and inexpensive credit[citation needed], although this is still hotly debated.
A long-term effect of the Great Depression was the departure of every major currency from the gold standard, although the initial impetus for this was World War II. See: Bretton Woods Accord In any case, the world economy has simply outgrown the capacity of additions to the world gold supply to accommodate the increase in world population and increased trade without periodic, painful revaluations of any currencies tied to gold.
Long Depression[edit source]
For more details on this topic, see Long Depression.
Starting with the adoption of the gold standard in Britain and the United States, the Long Depression (1873–1896) was indeed longer than what is now referred to as the Great Depression, but shallower. However, it was known as "the Great Depression" until the 1930s.
Panic of 1837[edit source]
Main article: Panic of 1837
The Panic of 1837 was an American financial crisis, built on a speculative real estate market.[10] The bubble burst on May 10, 1837 in New York City, when every bank stopped payment in goldand silver coinage. The Panic was followed by a five-year depression,[10] with the failure of banks and record high unemployment levels.[11]
Greek Depression[edit source]
Main article: European sovereign-debt crisis
Beginning in 2009, Greece sank into a recession that, after two years, became a depression. The country saw an almost 20% drop in economic output, and unemployment soared to near 25%.[12] Greece's high amounts of sovereign debt precipitated the crisis, and the poor performance of its economy since the introduction of severe austerity measures has slowed the entire eurozone's recovery. Greece's continuing troubles have led to discussions about its departure from the eurozone.
Regional Depressions Between 1973 and 2002[edit source]
Several Latin American countries had severe downturns in the 1980s: by the Kehoe and Prescott definition of a great depression as at least one year with output 20% below trend, Argentina,Brazil, Chile, and Mexico experienced great depressions in the 1980s, and Argentina experienced another in 1998–2002.
This definition also includes the economic performance of New Zealand from 1974–1992 and Switzerland from 1973 to the present, although this designation for Switzerland has been controversial.[13][14]
Over the period 1980–2000, Sub-Saharan Africa broadly suffered a fall in absolute income levels.[15]
Post-Communism[edit source]
The economic crisis in the 1990s that struck former members of the Soviet Union was almost twice as intense as the Great Depression in the countries of Western Europe and the United States in the 1930s.[16][17][18] Average standards of living registered a catastrophic fall in the early 1990s in many parts of the former Eastern Bloc - most notably, in post-Soviet states.[19] Even before Russia's financial crisis of 1998, Russia's GDP was half of what it had been in the early 1990s.[18] Some populations are still poorer today than they were in 1989 (e.g. Ukraine, Moldova, Serbia,Central Asia, Caucasus).[citation needed] The collapse of the Soviet planned economy and the transition to market economy resulted in catastrophic declines in GDP of about 45% during the 1990–1996 period[20] and poverty in the region had increased more than tenfold.[21]
Finnish economists refer to the Finnish economic decline around the breakup of the Soviet Union (1989–1994) as a great depression; this is partly attributed to the breakup of the Soviet Union, and partly to the Scandinavian banking crisis, which was also suffered, to a lesser degree, by Sweden and Norway.

Great Depression in India
From Wikipedia, the free encyclopedia
The Great Depression of 1929 had a very severe impact on India, which was then under the rule of the British Raj. The Government of British Indiaadopted a protective trade policy which, though beneficial to the United Kingdom, caused great damage to the Indian economy. During the period 1929–1937, exports and imports fell drastically crippling seaborne international trade. The railways and the agricultural sector were the most affected.
The international financial crisis combined with detrimental policies adopted by the Government of India resulted in the soaring prices of commodities. High prices along with the stringent taxes prevalent in British India had a dreadful impact on the common man. The discontent of farmers manifested itself in rebellions and riots. The Salt Satyagraha of 1930 was one of the measures undertaken as a response to heavy taxation during the Great Depression.
The Great Depression and the economic policies of the Government of British India worsened the already deteriorating Indo-British relations. When the first general elections were held according to the Government of India Act 1935, anti-British feelings resulted in the Indian National Congress winning in most provinces with a very high percentage of the vote share. ssion of the 1930s.
The Great Depression[edit]
A global economic depression broke out in 1929 following the American stock market crash of 1929 and rising speculations among the investors.
However, the causes were more diverse and multi-pronged, with the rise in costs and economic inflation of the post-war period being one of the main reasons. This inflation was caused by excessive manufacturing activities during the First World War.[4] As a result, huge stocks of goods were piled up without being used.[4]
Wartime expenditure had reduced the countries of Europe to a state of heavy debt.[5] Protective economic policies of European countries made their condition even worse.[5] The United States of America was not affected, partly because it had participated on the side of the victorious Allies and partly because the American states were never under attack during the span of the war.[5] As a result, the United States of America emerged as a financial superpower and the principal creditor to European countries.[5]
The Treaty of Versailles and its conditions had impoverished Germany.[5] Germany lost a lot due to its involvement in the war. The country now owed extremely high debts.[5] However, contrary to expectations, Germany did not pay off their debt by exporting manufactured goods.[5] Instead, Germany paid off its debts by borrowing from the United Kingdom.[5] The United Kingdom, meanwhile, paid Germany by borrowing from the United States of America.[5] This created a situation wherein all European countries became dependant on the United States of America.
When the American stock market suffered its first crash on October 24, 1929, there was a dreadful psychological effect on the nation.[6] America stopped providing loans to foreign countries, thereby leading to a global financial disaster.[6]

Economy of British India[edit]
Indian economy had been largely agricultural before and during the rule of the British. However, during British rule, there was a major shift from the growth of food grains to the cultivation of cash crops. This change was fostered by India's British rulers in order to provide for the textile mills in England, the most important of them being the cotton mills of Manchester and Lancashire which were fed with raw cotton produced in India. Since 1858, committees were established to investigate the possibility of cotton cultivation in India to provide raw materials for the mills in Lancashire.[1]New technologies and industries were also introduced in India, albeit on a very small scale compared to developed nations of the world.
An estimate by Cambridge University historian Angus Maddison reveals that India's share of the world income fell from 22.6% in 1700, comparable to Europe's share of 23.3%, to a low of 3.8% in 1952.[2] India's per-capita income for the year 1904 was ₤2.[3] Most economists feel that this decline was due to a systematic exploitation of India's resources by its British rulers[citation needed].
India at the onset of the Depression[edit]
India was one of the foremost suppliers of raw materials during the First World War.[8] India provided large quantities of iron, steel and other material for the manufacture of arms and armaments. Manufacturing units were gradually established and for the first time, the British Raj adopted a policy of industrialization.[8] India acted both as a supplier as well as a sprawling market for finished British goods in order to sustain Britain's wartime economy.[8]
When the war came to an end, the Montagu-Chelmsford reforms were enacted in order to provide certain concessions to Indians in return for their loyalty to the Empire during the war. In 1923, the British Raj offered government protection to nine industries posing them as a sincere bid to industrialize the economy.[8] However, the measures appeared symbolic and were intended to finance and protect British enterprise as was evident from the fact that all the benefactors were British-run industries.[8] At the onset of the Great Depression, as it had been always, much of India's imports were from the United Kingdom.[8] On the eve of the First World War, India was the British Empire's single largest market with its exports to India at Rs. 730 million making up over one-sixth of the country's total exports.[9]
During the annual fiscal year 1928–29, the total revenue for the Government of India was Rs. 1,548 million.[10] The total exports were valued at Rs. 3,390 million while imports were valued at Rs. 2,630 million.[11]
Impact of the Great Depression
International trade[edit]
International trade decreased a great deal. The imports fell by over 47% while the exports fell by over 49% between 1929 and 1932.[10][12] Between 1928–29 and 1933–34, exports due to seaborne trade decreased by 55.75% to Rs. 1.25 billion while imports decreased by 55.51% to Rs. 2.02 billion.[11]
Impact on the Railways[edit]
Due to a decline in exports and imports, and thereby, in the transportation of goods, the railway revenues decreased exponentially. All the expenses for the years 1930–31 and 1931–32 were paid from the Railway Reserve Fund.[14] There was a decrease of Rs. 150 million in the railway revenues between 1930 and 1932.[12
Dealing with home charges[edit]
In British India, apart from existing imports and exports, there was also a particular amount of money which colonial India contributed towards administration, maintenance of the army, war expenses, pensions to retired officers and other expenses accrued by Britain towards maintenance of her colony. These were known as "Home charges" and were paid for almost entirely by India.[14][15]
The Home charges was made of three components[16]
• Interest payable on Indian debt.
• Interest on the railways
• Civil and military charges.
Due to the drastic collapse of international trade and the very little revenue obtained for it, India could only pay off her home charges by selling off her gold reserves.[13][14] From 1931–32 to 1934–35, India exported Rs. 2,330 million worth of gold.[1
Consequences[edit]
The Great Depression had a terrible impact on the Indian farmer. While there was a steady, uninhibited increase in land rent, the value of the agricultural produce had come down to alarming levels.[17] Therefore, having incurred heavy losses, the farmer was compelled to sell off gold and silver ornaments in his possession in order to pay the land rent and other taxes.[17]
By 1931, around 1600 ounces of gold were arriving every day at the port of Bombay.[17] This gold intake was transported to the United Kingdom to compensate for the low bullion prices in the country and thereby revitalize the British economy.[7] United Kingdom was overjoyed as its economy recovered with gold and silver from India.[17]
The Viceroy, Lord Willingdon remarked
For the first time in history, owing to the economic situation, Indians are disgorging gold. We have sent to London in the past two or three months, 25,000,000 sterling and I hope that the process will continue[17]
Founding of the Reserve Bank of India[edit]
The policies of the Government of India during the Great Depression resulted in widespread protests all over the country. As the national struggle intensified, the Government of India conceded some of the economic demands of the nationalists, including the establishment of a central bank.[18]Accordingly, the Reserve Bank of India Act was passed in 1934 and a central bank came into being on April 1, 1935 with Sir Osborne Smith as its first Governor.[18] However, when Osborne Smith tried to function independently and indulged in open confrontation with P. J. Grigg, the finance member of the Viceroy's Council, he was removed from office.[18]
Great Depression in the United States
From Wikipedia, the free encyclopedia
The Great Depression began in August of 1929, when the United States economy first went into an economic recession. Although the country spent two months with declining GDP, it was not until the Wall Street Crash of October, 1929 that the effects of a declining economy were felt, and a major worldwide economic downturn ensued. The market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth and personal advancement. Although its causes are still uncertain and controversial, the net effect was a sudden and general loss of confidence in the economic future.[1]
Facts and figures[edit]
Effects of depression in the U.S.:[33]
• 13 million people became unemployed. In 1932, 34 million people belonged to families with no regular full-time wage earner.[34]
• Industrial production fell by nearly 45% between 1929 and 1932.
• Homebuilding dropped by 80% between the years 1929 and 1932.
• In the 1920s, the banking system in the U.S. was about $50 billion, which was about 50% of GDP.[35]
• From 1929 to 1932, about 5,000 banks went out of business.
• By 1933, 11,000 of the US' 25,000 banks had failed.[36]
• Between 1929 and 1933, U.S. GDP fell around 30%, the stock market lost almost 90% of its value.[37]
• In 1929, the unemployment rate averaged 3%.[38]
• In 1933, 25% of all workers and 37% of all nonfarm workers were unemployed.[39]
• In Cleveland, the unemployment rate was 50%; in Toledo, Ohio, 80%.[34]
• One Soviet trading corporation in New York averaged 350 applications a day from Americans seeking jobs in the Soviet Union.[40]
• Over one million families lost their farms between 1930 and 1934.[34]
• Corporate profits had dropped from $10 billion in 1929 to $1 billion in 1932.[34]
• Between 1929 and 1932, the income of the average American family was reduced by 40%.[41]
• Nine million savings accounts had been wiped out between 1930 and 1933.[34]
• 273,000 families had been evicted from their homes in 1932.[34]
• There were two million homeless people migrating around the country.[34]
• Over 60% of Americans were categorized as poor by the federal government in 1933.[34]
• In the last prosperous year (1929), there were 279,678 immigrants recorded, but in 1933 only 23,068 came to the U.S.[42][43]
• In the early 1930s, more people emigrated from the United States than immigrated to it.[44]
• With little economic activity there was scant demand for new coinage. No nickels or dimes were minted in 1932–33, no quarter dollars in 1931 or 1933, no half dollars from 1930 to 1932, and no silver dollars in the years 1929–33.
• The U.S. government sponsored a Mexican Repatriation program which was intended to encourage people to voluntarily move to Mexico, but thousands, including some U.S. citizens, were deported against their will. Altogether about 400,000 Mexicans were repatriated.[45]
• New York social workers reported that 25% of all schoolchildren were malnourished. In the mining counties of West Virginia, Illinois, Kentucky, and Pennsylvania, the proportion of malnourished children was perhaps as high as 90%.[34]
• Many people became ill with diseases such as tuberculosis (TB).[34]
• The 1930 U.S. Census determined the U.S. population to be 122,775,046. About 40% of the population was under 20 years old.[46]
• Economic indicators
• Change in economic indicators 1929–32[14] United States Great Britain France Germany
Industrial production –46% –23% –24% –41%
Wholesale prices –32% –33% –34% –29%
Foreign trade –70% –60% –54% –61%
Unemployment +607% +129% +214% +232%
Dates of the Great Depression in various countries
(in quarters) country depression began recovery began
United States 1929:3 1933:2
United Kingdom 1930:1 1932:4
Germany 1928:1 1932:3
France 1930:2 1932:3
Italy 1929:3 1933:1
Japan 1930:1 1932:3
Canada 1929:2 1933:2
Belgium 1929:3 1932:4
The Netherlands 1929:4 1933:2
Sweden 1930:2 1932:3
Switzerland 1929:4 1933:1
Denmark 1930:4 1933:2
Poland 1929:1 1933:2
Czechoslovakia 1929:4 1933:2
Argentina 1929:2 1932:1
Brazil 1928:3 1931:4
India 1929:4 1931:4
South Africa 1930:1 1933:1
Peak-to-trough decline in industrial production in various countries
(annual data) country decline
United States 46.8%
United Kingdom 16.2%
Germany 41.8%
France 31.3%
Italy 33.0%
Japan 8.5%
Canada 42.4%
Belgium 30.6%
The Netherlands 37.4%
Sweden 10.3%
Denmark 16.5%
Poland 46.6%
Czechoslovakia 40.4%
Argentina 17.0%
Brazil 7.0%

1. USA annual real GDP from 1910–60, with the years of the Great Depression (1929–1939) highlighted.
2. The unemployment rate in the US 1910–1960, with the years of the Great Depression (1929–1939) highlighted.
3. The Dow Jones Industrial, 1928–1930.
4. US industrial production (1928–39)
5. US Farm Prices, (1928–35)
6. The overall course of the Depression in the United States, as reflected in per-capita GDP (average income per person) shown in constant year 2000 dollars, plus some of the key events of the period.[39]
7. The Depression in international perspective.[49]
8. Total employment numbers in the United States from 1920 to 1940, excluding farms and WPA.