In considering the causes of the Great Depression it is important to remember that the Great Depression was called “great” not because it was the only economic depression of the 20th century. Rather it was the most significant of the economic depressions that emerged from the late 1800s into the 1900s, having the greatest impact on both the American and the international economy with the longest recovery time.
While general or popular histories of the Great Depression tend to focus on the United States, economic histories see it as a global event. It is necessary to understand the Great Depression as a global event for a contextual degree of comparison and contrast to better understand why certain countries moved out of the contraction more quickly than others.[1] There are a number of arguments for the causes of the Great Depression. One argument that scholars as well as those who lived through it have made is that the move away from the gold standard was a substantial cause of the Depression. From a common sense perspective, this make sense. It would seem that the dissolution of the gold standard led to “the break-up of international monetary unity” resulting in the absence of real support for the printed money. [2] In an oral history interview, Jane Ingraham, born in 1920, specifically mentions the Federal Reserve as a point of failure, blaming the dissolution of the gold standard for the Great Depression.[3] Friedman and Schwartz, in their seminal history, also note the failure of the Federal Reserve System in addition to the dissolution in the gold standard. However they argue “the failure of the Federal Reserve System to prevent the collapse reflected not the impotence of monetary policy but rather the particular policies followed by the monetary authorities… The contraction is in fact a tragic testimonial to the importance of monetary forces.”[4] So that Ingraham’s perception as a “regular” citizen (that is, not an economist or economic historian) saw an effect that would have felt like a cause.
Coming out of World War I was supposed to be a time of great prosperity for America. Men like Charles Schwab continued to urge an upbeat attitude in response to the contracting economy in the late 1920s banking, if you will, that America could pull itself back out of the hole it appeared to be heading for. However, at the same time, Schwab had taken steps to expand or diversity Bethlehem Steel. Robbins notes that the significant amount of production during World War I came to a sudden and significant halt. as he argues that the decrease in production at the end of World War I had a significant economic effect. [5] These changes “…first, they were discontinuous and…secondly, they were restrictive of free economic activity.”[6] To an extent, this lines up with what happened in 2008 around the use of sub-prime mortgages and the housing bubble.[7]
The discontinuity of production levels would have impact on employment. In regards to economic activity, Friedman and Schwartz argue, famously, “Everything depends on how much is taken as given…the monetary authorities could have prevented the decline in the stock of money…the same actions could have produced almost any desired increase in the money stock.”[8] To build economic activity the Federal Reserve could have released more cash into the economy. They build on this argument to argue that the consumers lost confidence in banks, not least due to the run on banks, and thus in the power of money. (See Ingraham’s comments above in regards to perception of the gold standard.) Stated another way “the loss of confidence in financial institutions, primarily commercial banks, and the widespread insolvency of debtors” pointed out both the amount of the debt held, the lack of holding less money as it was seen as less valuable.[9]
While economists do not all share the same approach they do tend to agree that the stock market crash along with the run of closing banks directly shaped how banks, businesses and other brokers did business with their money. Because money businesses, like banks or brokerage houses, sought to keep or add to their own bottom lines, as a matter of business, their own process of investing became very conservative, limiting the amount of funds for projects. This limiting of funds into the general marketplace had trickle-down effects into other areas such as employment. The generalized language of the economic historians who are describing the impact of the Great Depression should not detract from the significant real-life impact on the lives of people around the globe; “…in 1933, in the world at large, something like 30 million persons were out of work.”[10] This significantly impacted the recovery from the Great Depression.
Information shared through oral histories by men and women who lived through this time as children, share their recollections on the impression of Great Depression on their daily lives. Kathryn Shakespeare, born in 1920, recalled that “…the Great Depression was very, very sad. Didn’t have any clothes to wear, anything, hand me downs. I had lived through wonderful times, and then all at once my grandparents– it was just a different year, different kind of time.”[11] Another oral history interview from Wendell Thrasher born in 1924 into a sharecropper family, in response to a question about buying food “We growed our own vegetables. We had our own beef, our own pork…we had it rough. But we always had plenty to eat. Always had a big garden. My mother always canned.”[12] Jane Ingraham, recalled “I remember the scarceness of everything from food to gas to being able to bake a cake. Could not get sugar. You could not get butter. Gas was very scarce and hard to get….everyone I knew was very poor. And very little extra clothing, very little of any extra things at all.”[13] Finally, Edward Gillespie, born in 1912, was at Tufts in 1933, graduated in 1934, and found work as a chemical engineer.[14] Gillespie mentions that the Great Depression was a financial drain on the family but that he managed to finish college during that time speaks to the degree of monetary resources that the family had at the time. Ingraham also mentions that her years of high school were spent in the Great Depression but that she was able to go to college. The last two oral histories point to the fact that families with monetary resources were able to preserve some degree of access to resources. Engaging the oral histories alongside the scholarly discussions it is clear that there are multiple ways to understand the reasons, impact and recovery from the Great Depression.
[1] See Bernake, Ben S. “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression.” The American Economic Review, June 1983, Vol 73, 3.
[2] Robbins, Lionel. The Great Depression. New York City: New York. The Macmillan Company. 1934, 5.
[3] 2000. Oral History: [[Jane Ingraham]]. [Oral History]. OH.1284. Available through: Adam Matthew, Marlborough, America in World War Two: Oral Histories and Personal Accounts, http://www.americainworldwartwo.amdigital.co.uk/Documents/Details/OH_1284_AM [Accessed November 24, 2021].
[4] Friedman, Milton and Anna (Jacobson) Schwartz. A Monetary History of the United States, 1867-1960. Vol. no. 12.; Princeton: NJ. Princeton University Press, 1963.322
[5] Bethlehem would suffer the “…smallest decline in net earnings between 1920 and 1921” across steel companies in the US. See Hessen, Robert. Steel Titan: The Life of Charles M. Schwab. Pittsburgh, PA: University of Pittsburgh Press, 1975. 266.
[6] Robbins, Lionel. The Great Depression. New York City: New York. The Macmillan Company. 1934, 4.
[7] My understanding of the sub-prime mortgage has benefited enormously from This American Life discussing the housing bubble in their episode Giant Pool of Money which also mentions the Great Depression. See Freakonomics on this topic as well.
[8] Friedman, Milton and Anna Schwartz. A Monetary History of the United States, 1867-1960. Vol. no. 12, Princeton: NJ. Princeton University Press, 1963. 323.
[9] Bernake, Ben S. “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression.” The American Economic Review, June 1983, Vol 73, 3. 258.
[10] Robbins, Lionel. The Great Depression. New York City: New York. The Macmillan Company. 1934, 11.
[11] 7 Jan 2010. Oral History: Kathryn Shakespeare. [Oral History]. OH.2303. Available through: Adam Matthew, Marlborough, America in World War Two: Oral Histories and Personal Accounts, http://www.americainworldwartwo.amdigital.co.uk.ezproxy.liberty.edu/Documents/Details/OH_2303_AM
[12] 5 Jun 2009. Oral History: Wendell Thrasher. [Oral History]. OH.2778. Available through: Adam Matthew, Marlborough, America in World War Two: Oral Histories and Personal Accounts, http://www.americainworldwartwo.amdigital.co.uk.ezproxy.liberty.edu/Documents/Details/OH_2778_AM
[13] 2000. Oral History: Jane Ingraham. [Oral History].
[14] 1 Oct 2009. Oral History: Edward Gillespie. [Oral History]. OH.0879. Available through: Adam Matthew, Marlborough, America in World War Two: Oral Histories and Personal Accounts, http://www.americainworldwartwo.amdigital.co.uk.ezproxy.liberty.edu/Documents/Details/OH_0879_AM
Jeremy McGinniss 