Economic history · The Great Depression
Eight steps, about twelve minutes, a question at each. You need no economics and no preparation, only a willingness to guess before you are told.
Britain stopped trading pounds for gold in September 1931 and began recovering within months, while the countries that stayed on gold went on falling. Tariffs went up almost everywhere and world trade fell by about a third.
President Herbert Hoover did act. He put $1.5 billion into public works and set up a government lender in January 1932, and it was far too small against a collapse of this size. Drought struck the plains states through the 1930s on top of it, and farming families lost their living for reasons no policy in Washington had caused.
The unemployment rate is the number most often quoted for the 1930s, and it hides much of the damage. Between 1929 and 1933 the pay of American factory workers fell sharply for every hour worked. The working week was cut as well, so the people who stayed in work still lost a large part of what they earned.
None of that was being measured at the time, and the United States had no figure for what the country earned in a year until a senator ordered one in 1932 and it arrived in January 1934. What the state did count set the limit on who it could reach, and the pensions law of 1935 left out farm workers and domestic servants, while the unemployment figures now quoted for the 1930s were built by the Bureau of Labor Statistics in 1945, six years after the decade ended.
Eight steps on who carried the cost, and why it is so hard to see.
What this module covers
Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.
Step 1 of 8
When an economy stops, somebody has to start it again. The question is who, and with how much.
President Herbert Hoover put $1.5 billion into public works and set up a government lender, and the fall did not turn.
Public works are roads, dams and buildings paid for by the government so that people have work.
The lender was the Reconstruction Finance Corporation, set up on 22 January 1932 to lend to banks, railways and other companies in trouble.
Hoover is remembered as the president who did nothing, and the record shows a man doing a great deal.
Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.
Hoover put $1.5 billion into public works and built a government lender. Why is he still remembered as the president who did nothing?
For scale. The Reconstruction Finance Corporation was established on 22 January 1932.
Drought struck the farming country of the middle United States through the 1930s, and farming families lost their living for a reason no policy in Washington had caused.
The drought was at its most severe across the southwestern Great Plains, the wide flat farming land in the middle of the country.
Dry conditions ran from the Appalachian mountains in the east to the Rocky Mountains in the west.
Farming families who cannot earn cannot buy, and no policy in Washington could undo the weather.
The drought was caused by no government and could be ended by none. So why did it make the Depression worse?
For scale. The drought ran through the 1930s, and the institutions that record it disagree about which year it began.
Between 1929 and 1933 the pay of American factory workers fell by 21.4 per cent an hour.
Because it was not counted at the time, so every figure is a reconstruction, and reconstructions differ. The Bureau of Labor Statistics built its estimates in 1945 from tax records, census returns and industry surveys, and it published a table of rival answers alongside its own. A second question changes the answer again: whether somebody on a government relief programme counts as employed or unemployed. Different choices give different figures for the same year.
Hours fell as well, by 13.8 per cent a week. A worker who kept a job often went onto short time, which means fewer hours and a smaller wage at the end of them.
There is a different measure again: the total wage income of the people who kept their jobs.
Keeping a job in 1933 did not mean keeping a wage, and the unemployment figure on its own hides that.
Hourly pay fell 21.4 per cent. For people who kept their jobs, how far did total wage income fall?
For scale. Average weekly hours fell 13.8 per cent over the same four years.
When the Great Depression began in 1929, the American government could see much less of its own economy than a government can see today.
It means adding up what every person in the country earns in a year, so the total can be compared with last year's total. Without it a government can see individual firms closing and cannot tell whether the whole country is a tenth poorer or a third poorer. The United States governed for the first three years of the 1930s without that total, and built its first one in the middle of the slump.
The total every person in a country earns in a year is its . A government that has that total can say how much smaller the country has become.
The census was taken in 1930, and its figures were attacked at once as being too low.
Congress was unhappy enough with that count to require a second one for January 1931.
It is 1930. Three of these the American government could do. Which one could it not?
For scale. The 1930 census unemployment figures were attacked as being too low.
In 1932 the American government had no way to measure how much poorer the country had become. You are the senator who must decide whether to order a figure for it.
Banks are closing and farms are failing, and the 1930 census figures on work have already been attacked as too low. You can read what one industry says about itself, and nothing about the country.
Ordering a national income report would take a Senate Resolution. Building the figure would take a team under an economist such as Simon Kuznets, about two years, and money.
You are Senator Robert La Follette in 1932. The government cannot tell you how much poorer America has become. What do you do?
La Follette ordered the report. Senate Resolution 220 of 1932 directed the government to produce a national income report for 1929 to 1931, and Simon Kuznets, an economist working outside government, managed the work.
What followedThe report reached the Senate in January 1934 and was the first of its kind in the United States. It arrived too late to help anybody decide anything in the worst years. Every figure a government now publishes about the size of its economy is built on the method it established.
The work was driven in part by the crisis itself, and in part by the lessons of the First World War, when a lack of figures made planning difficult.
The Social Security Act of 1935, which set up American state pensions and unemployment payments, did not cover farm workers or domestic servants.
Domestic service means paid work in somebody else's home. On the 1930 census, the only figures the law's writers had, about 65 per cent of black Americans in work held one of those two kinds of job.
About 27 per cent of white workers in work were shut out by the same rule, on the same census.
The rule named occupations rather than race, and it still left out about 65 per cent of black workers. The Social Security Administration's own study prints both figures together.
The 1935 law left out farm workers and domestic servants. Of all the workers it left out, which group was the largest?
For scale. About 65 per cent of black Americans in work were in farm work or domestic service, on the 1930 census.
Unemployment had not returned to anything like its 1929 level eight years after the fall began.
There were 7,700,000 people out of work in that year, in an economy where factories and mines were making more than they had in 1929.
The following year it went back up rather than down, and the 1938 average was the worst since 1933.
The Great Depression is a decade rather than a crash because of that: unemployment never returned to its 1929 level before the war.
Unemployment was 3.2 per cent in 1929 and 24.9 per cent in 1933. Where was it in 1937, four years into the recovery?
For scale. In 1929, before the fall, the rate was 3.2 per cent.
The Bureau of Labor Statistics built the 1929 to 1939 unemployment figures in 1945.
The Bureau did the work six years after the decade ended, using tax records, census returns and industry surveys. It built the estimates so that they could be compared with the counts then published.
The Bureau published its working in a 1948 article, and Table 2 of it is headed "Selected estimates of unemployment in the United States 1929-39". That is a list of rival answers to one question.
Every figure quoted for the 1930s is a reconstruction, and the bodies that publish them say so plainly.
Put these four in the order they happened.
For scale. The first national income report was the first of its kind in the United States.
Module 5 of 7 in The Great Depression
Hoover's public works
$1.5 billionStates the dry conditions touched
30, of 48Factory pay and hours, 1929 to 1933
-21.4% an hour, -13.8% a weekWage income for people who kept work
-42.5%figures in 1929
none existedThe first report ordered and delivered
1932, and January 1934in 1937, eight years on
14.3%When the 1930s figures were built
1945You met two terms in this module
,
That is what the Depression cost, and how badly it was seen at the time. The answer to it began in March 1933.
[1] Why there were no figures: Bureau of Economic Analysis, Survey of Current Business, The evolution of US national income accounting. "In 1932, U.S. Senator Robert La Follette, in Senate Resolution 220, directed the BFDC to produce a report on U.S. national income for the period 1929-1931." The work "was driven in part by the lessons learned during World War I, when a lack of data made economic planning difficult, and the ongoing crisis of the Great Depression", and the result "was the first U.S. economics report of its kind". Simon Kuznets managed the study and the report reached the Senate in January 1934.
[2] When the figures were built: Bureau of Labor Statistics, Monthly Labor Review, Stanley Lebergott, Labor force, employment and unemployment 1929-39. "In 1945, the BLS developed and made available preliminary estimates of labor force, employment, and unemployment for the 1929-39 period, comparable with those then published by the Bureau of the Census." The article's Table 2 is headed "Selected estimates of unemployment in the United States 1929-39", and lists rival answers to the same question.
[3] The count that was attacked: US Census Bureau, 1930 Census. The 1930 unemployment figures "were attacked as being too low", and "Congress required a special unemployment census for January 1931; the data it produced confirmed the severity of the situation".
[4] What the figures showed: Congressional Research Service, Labor Market Data: Great Depression vs. Recent Recession, R40655. Unemployment was 14.3% in 1937 and averaged 19.0% in 1938. Between 1929 and 1933 average hourly earnings for manufacturing factory workers declined by 21.4%, while average weekly hours decreased by 13.8%. The report states that the 1930s figures are estimates made afterwards, designed to be comparable with the survey used today.
[5] What happened to wages: FDR Presidential Library and Museum, Great Depression Facts. "Wage income for workers who were lucky enough to have kept their jobs fell 42.5% between 1929 and 1933." That is total wage income, a different measure from the hourly earnings figure the Congressional Research Service gives.
[6] Who the 1935 law covered: Social Security Administration, Larry DeWitt, The decision to exclude agricultural and domestic workers from the 1935 Social Security Act, Social Security Bulletin 70(4). "It is true that from the 1930 Census... we can observe that about 65 percent of gainfully employed African Americans worked in the agricultural or domestic sectors of the economy." And: "Although 65 percent of the African American workforce was excluded by this provision, it was also the case that 27 percent of the white workforce was likewise excluded from coverage." And: "Of those individuals excluded under the provision, 74 percent were white, and only 23 percent were African American." DeWitt argues against reading the exclusion as racially intended, and all three figures are printed together for that reason, with no motive attached.
[7] How many people were out of work: US Department of Labor, History, Chapter 5: Americans in Depression and War. "The Bureau of Labor Statistics later estimated that 12,830,000 persons were out of work in 1933." In 1937 there were still 7,700,000 people unemployed, even though "industrial production exceeded the level reached in 1929".
[8] What the president did, and what the weather did: Herbert Hoover Presidential Library and Museum, The Great Depression. The exhibit is organised by year, 1929 to 1933. It records the public works money and that "On January 22, 1932, Hoover established the Reconstruction Finance Corporation (RFC)". On the drought it says "Dry conditions touched 30 states from the Appalachians to the Rockies".
[9] What happened on the land: Library of Congress, The Dust Bowl, US History Primary Source Timeline. "Between 1930 and 1940, the southwestern Great Plains region of the United States suffered a severe drought." EH.net's encyclopedia dates the same drought from 1933, which is why no start year is stated anywhere in the prose.
Country data from the World Bank (CC BY 4.0) and the UNDP Human Development Report (CC BY 3.0 IGO)
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