Within macroeconomics, economists agree that there were a number of
contributing factors that led to the Great Depression. However, most of the discussion is about what was responsible for the depth and the length of this economic event. In the four years starting in the summer of 1929 until 1933,financial markets and institutions, labor markets as well as international currency and goods markets had stopped functioning and it seemed that economic and monetary policy remained helpless in that period. To analyze the Great Depression, Friedman and Schwartz supply one of the most critical but popular explanations. They focus on the monetary policy of the Federal Reserve System (hereinafter Fed) of the United States(hereinafter U.S.) since the Fed allowed a severe contraction in money supply
in the period of 1929 – 1933, even though the Federal Reserve Act of 1913 delegated monetary actions by the Fed to avoid such monetary contraction. Friedman and Schwartz claim that the severeness of monetary contraction resulted from the Fed’s passive response to the banking panics in the 1930s when the public increased sharply its demand for currency. However, they admit that the Fed conducted a successful policy during most of the 1920s until a “shift in power within the system and the lack of understanding and experience of those individuals to whom the power shifted” occurred. Herein, they point to the death of Benjamin Strong the Governor of the New York Federal Reserve Bank who had the sagacity and leadership to
take measures that would have avoided the Great Depression. Thus, they maintain that monetary contraction in the period of 1929 – 1933 induced the Great Depression due to a misguided policy by the Fed that was eventually in authority for the downturn in economic activity.
Table of Contents
- 1. Introduction
- 2. The 1920s
- 2.1 The Economic Development After World War I
- 2.2 Return to the Gold Standard
- 2.3 International Trade and Capital Flows
- 2.4 The Stock Market Boom and the Response of the Federal Reserve System
- 3. The Causes of the Great Depression
- 3.1 Stock Market Crash on Wall Street
- 3.1.1 What caused the Crash?
- 3.1.2 The Economic Downturn after the Crash of 1929
- 3.2 Banking Crises
- 3.2.1 The 1930 Banking Crisis
- 3.2.2 The 1931 Banking Crises
- 3.2.2.1 Onset of the First 1931 Banking Crisis
- 3.2.2.2 Onset of the Second 1931 Banking Crisis
- 3.2.3 The 1933 Banking Crisis
- 3.2.4 Economic Consequences of the Banking Crises
- 3.2.4.1 Money Supply Channel
- 3.2.4.2 Credit Channel
- 3.2.4.3 Interest Rate Uncertainty Channel
- 3.3 Debt Deflation
- 3.4 The Gold Standard Between 1929-1933
- 3.4.1 The Four Structural Flaws
- 3.4.1.1 Asymmetry of the Interwar Gold Standard
- 3.4.1.2 Foreign Exchange Reserves
- 3.4.1.3 Absence of Power of Central Banks
- 3.4.1.4 Gold Standard Disparities
- 3.4.2 The Gold Standard as a Driving Force in the Depression
- 3.5 Rigidity of Nominal Wages
- 3.6 World Tariffs
- 3.7 Hoover's Liquidationist Theory
- 4. Economic Recovery
Objectives and Key Themes
This bachelor thesis aims to analyze the contributing factors leading to the Great Depression, focusing on the depth and duration of the economic crisis. It challenges the solely US-centric view, considering international factors and structural issues in other economies.
- The role of the 1929 stock market crash in triggering the Great Depression.
- The impact of banking crises and their economic consequences.
- The influence of the gold standard and its inherent structural flaws.
- The effects of monetary policy and the Federal Reserve System's response.
- The contribution of international factors, such as trade and debt deflation.
Chapter Summaries
1. Introduction: This chapter introduces the central question of the thesis: While economists agree on multiple contributing factors to the Great Depression, debate centers on the depth and length of the crisis. It highlights the dysfunction of financial, labor, and international markets from 1929-1933 and the seeming ineffectiveness of economic and monetary policy at that time. The chapter uses Friedman and Schwartz's monetary policy explanation as a starting point, acknowledging their emphasis on the Federal Reserve's role in allowing a severe contraction of the money supply despite the mandate of the Federal Reserve Act of 1913. However, it critiques their focus on the U.S. economy, neglecting international factors and structural problems in other nations.
2. The 1920s: This section sets the stage by examining the economic landscape of the 1920s. It covers the post-World War I economic recovery, the return to the gold standard, international trade and capital flows, and the stock market boom that preceded the crash. This chapter likely analyzes the economic policies and conditions that created a climate of apparent prosperity masking underlying vulnerabilities that would later contribute to the severity of the Depression. The interplay between these factors and the actions (or inaction) of the Federal Reserve would be a central element of the analysis.
3. The Causes of the Great Depression: This is the core of the thesis, delving into the various causes of the Great Depression. It likely begins with a detailed examination of the 1929 stock market crash, analyzing its causes and the immediate economic downturn. Subsequent sections likely explore the cascading effects of banking crises throughout the early 1930s, their consequences for the money supply and credit markets, and the role of debt deflation. It also addresses the structural flaws of the interwar gold standard, the impact of rigid nominal wages, the effect of high tariffs on international trade, and the implications of Hoover's liquidationist theory. This chapter integrates these different elements to build a holistic picture of the factors contributing to the crisis’s intensity.
4. Economic Recovery: This chapter would analyze the eventual economic recovery following the Great Depression. It will likely examine the policies implemented, both domestically and internationally, that contributed to the eventual turnaround and discuss the factors that contributed to the pace and nature of the recovery. This could involve an analysis of governmental interventions, changes in monetary policy, and the role of international cooperation in stimulating economic growth.
Keywords
Great Depression, 1929 Stock Market Crash, Banking Crises, Gold Standard, Monetary Policy, Federal Reserve System, Debt Deflation, International Trade, Economic Recovery, Nominal Wages, Tariffs.
Frequently Asked Questions: A Comprehensive Language Preview of the Great Depression
What is the main topic of this academic text?
This text provides a comprehensive analysis of the Great Depression, exploring its causes, consequences, and eventual economic recovery. It goes beyond a solely US-centric view, considering international factors and structural issues in various economies.
What are the key themes explored in the text?
Key themes include the role of the 1929 stock market crash, the impact of banking crises and their economic consequences, the influence of the gold standard and its inherent flaws, the effects of monetary policy and the Federal Reserve System's response, and the contribution of international factors like trade and debt deflation.
What does the text cover in its introduction?
The introduction establishes the central research question: while multiple contributing factors to the Great Depression are agreed upon, debate centers on the crisis's depth and duration. It acknowledges Friedman and Schwartz's monetary policy explanation but critiques its US-centric focus, emphasizing the importance of international factors and structural problems in other countries.
What is covered in the chapter on the 1920s?
This chapter sets the scene by analyzing the economic conditions of the 1920s, including post-World War I recovery, the return to the gold standard, international trade and capital flows, and the stock market boom preceding the crash. It likely examines how economic policies and conditions created an environment of apparent prosperity masking underlying vulnerabilities.
What are the main points discussed in the chapter on the causes of the Great Depression?
This core chapter delves into various causes, starting with a detailed examination of the 1929 stock market crash, its causes, and the immediate economic downturn. It explores the cascading effects of banking crises, their consequences for the money supply and credit markets, and the role of debt deflation. It also analyzes structural flaws of the interwar gold standard, rigid nominal wages, high tariffs, and Hoover's liquidationist theory, integrating these elements for a holistic view.
What does the chapter on economic recovery focus on?
This chapter analyzes the economic recovery following the Great Depression. It examines domestic and international policies contributing to the turnaround, discussing factors influencing the pace and nature of recovery. This could involve an analysis of government interventions, monetary policy changes, and the role of international cooperation in stimulating growth.
What is the structure of the text?
The text follows a clear structure: an introduction, a chapter setting the historical context of the 1920s, a core chapter detailing the causes of the Great Depression, and a concluding chapter on economic recovery. It includes a table of contents, objectives and key themes, chapter summaries, and keywords.
What specific aspects of the Gold Standard are discussed?
The text examines the structural flaws of the interwar gold standard, including its asymmetry, foreign exchange reserves, the absence of central bank power, and disparities within the system. It also explores the gold standard's role as a driving force in the Depression.
What is the role of monetary policy in the text's analysis?
The text analyzes the role of monetary policy, particularly the Federal Reserve System's response to the crisis. It considers the effectiveness (or lack thereof) of economic and monetary policy during the 1929-1933 period.
What are the keywords associated with this text?
Keywords include: Great Depression, 1929 Stock Market Crash, Banking Crises, Gold Standard, Monetary Policy, Federal Reserve System, Debt Deflation, International Trade, Economic Recovery, Nominal Wages, and Tariffs.
- Quote paper
- Dennis Sauert (Author), 2009, The Role of the 1929 Stock Market Crash and other Factors that caused the Great Depression, Munich, GRIN Verlag, https://www.grin.com/document/158132
