The Great Depression is the most catastrophic event of the 20th century, and you might be surprised to find that it is still poorly understood, despite the fact that it is by far the most well-studied part of history of the last century. Critics are quick to call it an inevitable consequence of capitalism, although Friedman asked the pointed question that if this were a consequence of laissez faire capitalism, why didn’t we have more great depressions? Conservatives like Friedman are quick to turn the other way and blame government, saying that inept responses caused the Depression. Of course, you then have the equally itchy question that if the Great Depression were caused by stupid government, why haven’t there been more great depressions? We’ve never had a shortage of stupid leaders.
Here’s the Great Depression in outline form:
1929 – US at 3% unemployment
-August – “official” start of the recession. Industrial production begins to fall but stock prices continue to rise
-October – Black Thursday-Tuesday. Stock prices plummet, industrial production continues to slide
1930 – US at 9% unemployment
-June – Hoover signs Smoot-Hawley tariff, believing protectionism would save American jobs
-October-December – first banking panic
1931 – US at 16% unemployment
-January – Hoover decides “nothing” is the best policy, trying to let the system correct itself
-March-June – second banking panic
-September – Britain abandons the gold standard. In a rush, the Fed raises interest rates, believing it needed to encourage savings by propping up the value of the dollar, which would increase investment then consumption. Banks suffer a third panic that is short but hits the hardest yet.
1932 – Decline continues. FDR wins handily.
1933 – US at 25% unemployment
-January-March – banks suffer their last and final panic, which is also the worst.
-March – FDR takes office, declares a bank holiday and immediately pulls the US off the gold standard. The Depression’s recession is over. Things remain in bad shape, but the economy begins to recover.