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Great Depression
   Good afternoon, today’s lecture is the first one of a series of lectures on Great Depression. We will first talk about the definition of Great Depression and then its causes.
   First, the Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s. It was the longest, most widespread, and deepest depression of the 20th century, and is used in the 21st century as an example of how far the world’s economy can decline. The depression originated in the United States, triggered by the stock market crash of October 29, 1929 (known as Black Tuesday), but quickly spread to almost every country in the world.
   The Great Depression had devastating effects in virtually every country, rich or poor. Personal income, tax revenue, profits and prices dropped, and international trade plunged by half to two-thirds. Unemployment in the United States rose to 25%, and in some countries rose as high as 33%. Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by approximately 60 percent. Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as cash cropping, mining and logging suffered the most. Countries started to recover by the mid-1930s, but in many countries the negative effects of the Great Depression lasted until the start of World War II.
   Second, I’d like to talk about the causes of Great Depression. There were multiple causes for the first downturn in 1929, including the structural weaknesses and specific events that turned it into a major depression and the way in which the downturn spread from country to country. In relation to the 1929 downturn, historians emphasize structural factors like massive bank failures and the stock market crash, while economists point to Britain’s decision to return to the Gold Standard at pre-World War I parities.
   We know recession cycles are thought to be a normal part of living in a world of inexact balances between supply and demand. What turns a usually mild and short recession or "ordinary" business cycle into an actual depression is a subject of debate and concern. Scholars have not agreed on the exact causes and their relative importance. The search for causes is closely connected to the question of how to avoid a future depression, and so the political and policy viewpoints of scholars are mixed into the analysis of historic events eight decades ago. The even larger question is whether it was largely a failure on the part of free markets or largely a failure on the part of government efforts to regulate interest rates, curtail widespread bank failures, and control the money supply. Those who believe in a large role for the state in the economy believe it was mostly a failure of the free markets and those who believe in free markets believe it was mostly a failure of government that compounded the problem.
   Current theories may be broadly classified into three main points of view. First there are the monetarists, who believe that the Great Depression started as an ordinary recession, but that significant policy mistakes by monetary authorities (especially the Federal Reserve), caused a shrinking of the money supply which greatly exacerbated the economic situation, causing a recession to descend into the Great Depression. Related to this explanation are those who point to debt deflation causing those who borrow to owe ever more in real terms.
   Second, there are structural theories, most importantly Keynesian, but also including those who point to the breakdown of international trade, and Institutional economists who point to underconsumption and overinvestment, namely, economic bubble, malfeasance by bankers and industrialists, or incompetence by government officials. The consensus viewpoint is that there was a large-scale loss of confidence that led to a sudden reduction in consumption and investment spending. Once panic and deflation set in, many people believed they could make more money by keeping clear of the markets as prices dropped lower and a given amount of money bought ever more goods, exacerbating the drop in demand.
   Lastly, there are various other theories that downplay or reject the explanations of the Keynesian and monetarists. For example, some new classical macroeconomists have argued that various labor market policies imposed at the start caused the length and severity of the Great Depression. The Austrian school of economics focuses on the macroeconomic effects of money supply, and how central banking decisions can lead to overinvestment. The Marxist critique of political economy emphasizes the tendency of capitalism to create unbalanced accumulations of wealth, leading to overaccumulation of capital and a repeating cycle of devaluations through economic crises. Marx saw recession and depression as unavoidable under free-market capitalism as there are no restrictions on accumulations of capital other than the market itself.
   To conclude my lecture, we can say that the Great Depression once had a really devastating effect worldwide. Though there are multiple causes for the Great Depression, the current theories may be broadly classified into three main points of view. The monetarists believe that the Great Depression started as an ordinary recession, which was afterward exacerbated by monetary authorities’ policy mistakes. The second viewpoint lies with those structural theories, most importantly Keynesian. They believe that there was a large-scale loss of confidence that led to a sudden reduction in consumption and investment spending. Finally, we also listed some other theories that downplay or reject the explanations of the Keynesian and monetarists, such as those presented by the new classical macroeconomists, the Austrian school of economics, the Marxists, etc.