The great Depression

            The Great Depression of the 1930s was the economic event of the 20th century. The stock market crash that began on a black Friday in October 1929 was, without doubt, a major historical turning point in capitalist Europe's economic development.
             This essay aims to explore the historical factors, how the depression was initiated, central bank policies and political decision making. In doing so, however, the European experience cannot conveniently be separated from that of the United States.
             Prosperity was especially evident in America and because of her loans to Europe and her position as an importer (mostly of primary products) this prosperity was communicated to the rest of the world. But in October 1929 the boom came to an end with the stock exchange crash. Thereafter a mood of depression settled over businessmen in America. Orders for goods were cancelled and investment fell off sharply. Also American funds in Europe were withdrawn. This caused problems for Germany, the country with the largest amount of American investment. Withdrawals of capital continued after the Wall Street crash. .
             The contraction of American lending caused embarrassment to the borrowing countries, many of them primary producers, because they had fixed payments to meet on previous loans and in Germany's case reparations.
             Unemployment soared in the United States, peaking at 24.9% in 1933 and remained above 20% for two more years, reluctantly declining to 14.3% by 1937. It then leapt back to 19% before its long term decline. Since most households had only one income earner the equivalent modern unemployment rates would likely to be much higher. Real income output (real GDP) fell by 29% from 1929 to 1933 and the United States stock market lost 89.5% of its value. [Macroeconomics in the Global Economy, by Sachs and Larrain]. Another unusual aspect of the Great Depression was deflation. Prices in the U.K, Germany and France fell by 25%, 30% and 40% respectively from 1929 to 1933.