The Great Depression: Causes and Flow

The Great Depression: causes and flow

In the 20th century the world economy has got through the greatest recession in its history, even despite that the recent crisis is still not completely over yet. It lasted 43 months and cost many people their homes, even the most successful ones. “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“, so Wikipedia.

The World War I. and “roaring twenties”

World War I was a military conflict that lasted from 1914 to 1918 what was relatively short before 1929 when the Great Depression began. That’s why I feel it important to start our looking for roots of the recession right here. Typical war economy meant high production with high employment. And because the war didn’t take place in any part of U.S., they could truly profit from the war-oriented industry. That’s why the true shock for U.S. economy was after the war, when adjustment of economy from war time to peace time was enormously hard. Factories that were focused on war machinery production needed to be shut down or realigned. The second factor was demobilization of soldiers. Military employed nearly 3 million people who needed to re-enter the civilian labor forces after the war. The greatest impact was in 1920 when 1,6 million people joined the labor force, what increased the unemployment rate from 1,4% in 1919 to 5,2% in 1920. This all caused the first post-war recession of 1920-1921. It lasted 18 months and was characterized by extreme deflation. Value of deflation was estimated to 13-18%, what was the greatest year-to-year percentage decline in over 140 year history. It was then followed by another two smaller recessions in 1923-24 and 1926-27.

Because of the terrible aftermaths of the World War I one (formerly including me) could easily think that the Great Depression is tightly bound with it at least as an indirect consequence....