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An Analysis of the History of the Great Depression

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Grasping an economic understanding of historical events is an exceedingly difficult task. While creating a logical narrative that underscores the actual progression of such developments is challenging, even more difficult is the ability to explain the causes of these economic events in a convincing and concise way. After roughly eight decades of reflecting upon the Great Depression, the significant factors that led to the collapse have largely been identified in our respective literature, and similar explanations between these sources as to the nature of the decline have emerged. Though it is compelling to think that more time to look upon or errors allows more answers to become manifest, in fact, the greater the distance from this event, the more stale our conclusions become. Our analysis of the Great Depression becomes diluted through its application to our own problems. Though we possess a number of plausible explanations for the Great Depression and reasons for applying them to our current economic situation, have strayed away from uncovering the individual and organic human decisions that constitute these apparent and overarching financial changes. For as many times as we have repeated and can recite the factors which were important in creating the Great Depression, the explanation behind the events are often delivered in a matter-of-fact way, treating complex and dynamic human behavior as simple cause and effect. Within economic literature about Great Depression written from 2008 to the present, many articles, whether scholarly or commercial, regurgitate the essential data, facts, and basic analysis contained within the work of academics such as Robert McElvaine and J.K. Galbraith, but fail to contribute any original discussion towards significance of human behavior, American culture, and other qualitative factors necessary to understanding the order of this narrative.

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The greatest misunderstanding present in recent articles on the Great Depression has been the historical influence of certain policymakers, particularly that of Franklin Roosevelt. Though all texts knew the punch line—that Roosevelt’s had an unparalleled skill as a Depression-era President—few evaluations failed to produce the rationale needed to recognize the transcendent effect he had on the public’s behavior. Most publications could identify that Roosevelt was a great leader. They talked about Roosevelt’s revaluation of the gold standard1(PBS), his championing of the Forgotten Man2, and his seminal fireside chats3. Much of the information given about Roosevelt was used to reveal deficiencies in the current president. Roosevelt was complimented by several writers for having the capacity to adapt to the times, as compared to being rigid in his ideology4. This ability to be flexible in rough economic times was described as an honorable trait, a lesson that our current president could learn a thing or two from5. Roosevelt was an accomplished politician and president, yet facts that support this sentiment fail to provide reasoning for the disparity between the public approval he received and the approval he should have gotten. In McElvaine’s conception, Roosevelt was the kind of galvanizing character who told people not to fear and they abided (115). When the people looked at Roosevelt, they saw a man deserving of reverence. Because the public looked to his intentions, when he failed in producing results, he did not suffer widespread criticism. Many knew that Roosevelt was able to get the job done, and they could point to reasons that described the great things he did, but analysis rarely took into account the psychological impact that the president had on the people during this period. For example, during 1933, the economy experienced a 50% decrease output and 25% unemployment, yet people were expecting inflation in the money supply. Economist Christina Romer says the most plausible explanation for such beliefs is that Roosevelt’s actions had “a powerful impact on the public’s psyche.” Even McElvaine did not fully recognize the importance of Roosevelt’s personality in generating progress to some extent. McElvaine points to the important distinction that the Congress had more of a role in passing the legislation of the New Deal than Roosevelt. It is true that the Congress and Supreme Court deserved more credit for their work during Roosevelt’s presidency. Despite the fact that he only passed 2 out of 15 of the New Deal laws, this does little to erode his capacity as a politician. As Romer explains, it had far less to do with his direct involvement in writing the laws and more to do with causing a regime shift (voxeu) What was most important in this dramatic policymaking was that it changed peoples’ expectations. In order to remove the devastating impact of lack of consumer demand and an unhealthy circulation of capital, expectations were central to the health of the economy. Quite frankly, Roosevelt didn’t have a clear prescription to end the Great Depression. As historian Amity Shlaes writes, a lot of Roosevelt’s decisions, especially those with monetary policy, involved experimentation. Morgenthau later wrote about changing the gold standard, saying “If anyone knew how we (the President and myself) did this, they would be frightened.” (PBS) The accomplishments espoused by such articles point to a picture of man who was successful through reform, whereas Roosevelt spurred change largely by the way he was viewed, divorced from all the material policy changes that we can attribute to him.

As compared to highlighting the significance of human decisions, most contemporary writing on the Great Depression placed emphasis on objective determinations as the source of answers instead of looking at the larger cultural background of the period. Few articles looked to culture as credible historical sources. No articles mentioned celebrities, popular music, books or any kind of media of the period. One source only went so far as to mention a cartoon from the New Yorker (PBS). Additionally, if anything looked to the mindset of Americans, it was contemporary Americans looking to pick the brain of depression-era citizens to find some original lessons on frugality. Instead of making a qualitative judgment based on their own evaluation of the situation, writers often stated evidence conclusively, with little regard for the dissenting opinion. Though there was certainly disagreement among the texts. Just as one article from the Economist mentions that “central bankers were responsible for much of the suffering in the Depression,” another text states that “Central bankers in the 1930s and ’40s were not important people.” As easily as one interview saw the Great Depression as part of a supercycle, others (including Galbraith) reject the cyclical cause. The only laudable articles were ones published in academic journals. They came to speculative conclusions based on well-founded observations. What made their contributions unique was because they created a different narrative—they placed different weight to certain factors. As sources became longer and longer, the more factors they considered in what caused the Great Depression. For example, a book written by the historian Peter Temin traces the Great Depression all the way back to World War I, arguing that the weakened economies of Germany and the UK and the strengthened one of the US caused the depression.

Additionally, by directly comparing data between the two eras, little care was not taken to ensure meaningful comparisons were being made in the right way. Many sources sought to compare the relative situation of the economy with the Depression economy for answers, but they appealed to misleading data as a gauge. Unemployment was a popular choice, because of the ease in comparison, but there was little consideration for the accuracy of these rates. Unemployment records were not kept in the 1920s or 1930s as they are now. In fact, any numbers are merely estimates and guesses. There was little understanding of business cycles or inadequate demand, and no sense that business or government were primarily responsible for the level of unemployment. This meant that keeping data on unemployment was rarely a concern of government. As one source was wise to point out, due to the stigma surrounding those without jobs, there was little sympathy for unemployed, which translated to little consideration (NEP). The US was primarily an agricultural and manufacturing based economy in the 1930’s. Any attempt to compare similar data to our current situation, which is based upon a service economy is making a poor connection. No articles made the observation that an economy centered on a different manner of production demands different prescriptions for economic change. In the present globalized economy, a great deal of our goods are electronic and center around the use of the computer. Due to the fact that imports and exports compose a higher factor of GDP than before, we cannot regard things that change this amount, such as tariffs, as having the same impact across time periods. This is contrast to Galbraith, who talks thoroughly about the relation of fundamentals, particularly of agricultural and automobile production at companies such as Ford and General Motors, in affecting fluctuations in stock prices.

Through attempting to gain insight from economic events such as the Great Depression, one must recognize the difference between knowing and understanding in this context. It is easy to behave as if one has learned from a particular event. It takes little more than a web search to conjure hundreds of articles that provide a litany of facts that can be culled from. The unscrupulous and passive analyst will simply take these recorded facts as verbatim, and reorganize them to fit their level of comprehension. A person who seeks understanding is critical to what they read and synthesizes material in a philosophical way that is based on their own value system. At the present time, with virtually instant access to information, we can all learn from the Great Depression whenever we choose. As an isolated incident, it is a compelling story in its own right, but the sign of understanding history is revealed practically, not theoretically. For as much as we think trends in data and patterns in past human behavior are comparable across time, these observations remain in the past. Without the exact same circumstances, we cannot make the same mistakes that were made in the Great Depression. In a new environment with a changing economic landscape, we must recognize this period’s problems as distinctly our own and in order to do that, we must see the Depression as it is, not how we want to see it. To understand the Great Depression is to recognize its inherent differences versus its similarities to our contemporary economic standing, and to act with an appreciation for this fundamental divide.

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