Ecomics and Society 101: Great depression of the 1930s


The ongoing global crisis is popularly believed to have its origin in the ongoing United States crisis. At the same time, today’s US crisis is also believed to be worst than the great depression of the 1930s.

What does history tells us on the great depression? What happened during the great depression?

The fall in stock market prices from 3 September to 13 November 1929 is considered as the trigger of the great depression. During this period of 71 days, stock market prices went down by 47.9%. In other words, stock prices went down by around half of their values in about 2 months. This is equivalent to a drop in the value of everybody’s wealth by half during the period.

The fall in stock market prices in 1929 was followed up by a great fall of 86% from 17 April 1930 to 8 July 1932 (813 days). In short, after the fall in stock prices that reduced wealth by half in only 2 months in 1929, wealth was further reduced by 86%, making a rough total of 90% in wealth reduction.

For more accuracy, let us see real stock price charts.

Analyzing the Dow Jones Industrial Average Index (DJIA), for example, we see that the DJIA index went down from 381.17 in 1929 (before the fall) to 41.22 in 1932 or –89.19%. This is equivalent to a reduction of wealth of 89%. People that held a million dollars in 1929 before the great depression found they are holding only $110,000 in 1932.

Incredible? No. This is really possible in today’s crisis. In early October this 2008, for example, the news dailies reported that close to P554 billion of value were lost in the Philippine stock market in only six days. Think of this in terms of a reduction in demand. This is also equivalent to shrinkage in the market that eventually affects production.

The reduction in stock prices represents the perception of business on the economy. Inevitably, perception will have an effect on the real economy. In the first of the seven series of Economics and Society 101 on the current global crisis (Nordis, 19 October 2008), this column noted that in the 1930s, real US gross national product (GDP) at their 2000 value went from $865.2 billion in 1929 to $790.7 billion in 1930, to US$739.9 billion in 1931, to US$643.7 billion in 1932, and to US$635.5 billion in 1933.

The crisis was accompanied by dropping prices. In 1929, prices did not increase in the US but went down by 2.5% in the 1930. Prices went down by 8.8% in 1931 and 10.3% in 1932. Inflation was negative 5.1% in 1933 and it was only in 1934 that prices went up by 3.3%. In summary, therefore, the decline in US output was accompanied by deflation. In contrast, the market price of gold was stable during the crisis years.

Did quality of life improved with lower prices? No. This is why the great depression of the 1930s was called a crisis. Real gross domestic product per capita in year 2000 values went down from US$7,099 in 1929 to US$6,418 in 1930. In 1931, GDP per capita in the US went down further to US$5,960 and down further to US$5,152 in 1932. In 1933, real GDP per capita went down to US$5,056.

Similarly, in the United Kingdom (UK) or Britain, inflation was –0.92% in 1929, -3.83% in 1930, -6.94% in 1931, -2.14 in 1932, and –2.19 in 1933. In contrast, UK real output in 2000 values went down from 207,431 billion British pounds in 1929 to only 205,780 billion in 1930, £196,234 billion in 1931, and £196,234 billion in 1932.

As a result of the great depression of the 1930s, Philippine total exports went down from P623.2 million in 1929 to P512.5 million in 1930, to P406.3 million in 1931, and P349.5 million in 1932.

Onofre D. Corpuz in “An Economic History of the Philippines” says that the crisis hit foreign trade first then agriculture, business, and government finance. The birth of the old Communist Party of the Philippines in the 1930s is also being partially attributed to the increasing economic difficulties during the period in which the US economy was on a sickbed.

Thus, we have good evidence to claim that the US crisis even during the 1930s was a global crisis. It is even correct to say that every crisis of capitalism is a global crisis. As they say, when the US catches cold, countries like the Philippines catch flu.

When capitalism acquired colonies and semi-colonies, capitalist crises are inherently global because colonies and semi-colonies are not only sources of raw materials, markets, and cheap labor, but they are also locations for export of crises.

(The author maintains a blog at and can be contacted through and +63927-536-8431)


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