Prof. Brian Domitrovic: The Great Depression - What Caused it and What it Left Behind

The 1920s weren't so prosperous for the vast majority of American farmers.

I don't think you can look at the Great Depression without considering the Roaring 20's that preceded it. Together, they make up the largest boom and bust cycle in American history. Austrian Business Cycle Theory explains how monetary inflation leads to price inflation and business cycles. The Federal Reserve got started back in 1914, but World War I took center stage for a little while. After that, the Fed's policies undoubtedly fueled the economic boom, and probably contributed to the increase in consumer credit, as businesses expanded and thought consumers could afford to pay for such credit. This may have also been the reason the stock market became so prominent during this time, as many businesses seemed to be growing and doing well. However, since new money didn't create new resources or new actual wealth, a crash was inevitable, and it was the shortage of available resources for all the business plans implemented that caused problems on the stock market, the banks, and eventually led to the depression itself. At first, the Fed wasn't really sure what their policy should be and made mistakes that increased the economic problems. Since then, the Fed refined its tactics and limited its inflationary policies to about 2-3% per year, so that new economic crises tend not to be as big as the Depression was. But make no mistake, monetary inflation continues, and continues to cause economic problems for us, such as the 2007-08 economic crisis.

So alcohol prohibition in 1920 and increased penalties in 1929 had nothing to do with the confiscations, fines, padlockings, prison time, police murders or bankruptcies. And none of these affected the fractional reserve banking system. Riiiight...

The question is "Is it fair to compare the 30s to the 20s when the 20s were the results of an inflationary monetary cycle?" If I charged thousands of dollars more on my credit card in one decade and decided to live within my means the next decade, would it be fair to say that I had a worse decade?

No real mention of Mises' Business Cycle theory :'(

I've also read many of the claimed reasons why economists (and others) think the causes of the Great Depression were. And like others have said, many of them seem to be as much symptoms as they might be causes. My theory is this— Declining birth rates in the US (and elsewhere in the world), beginning in the US around 1910 onward, along with other contributing demographic factors brought the Great Depression on. • Women leaving home to work more from 1910 onward, had the effect of lessening the number of children born. Increased debt for the purchase of consumer goods, might be one big reason more and more of them did. • WWI with all its casualties of war meant there were fewer young men to get married afterwards, and raise a family. • The flu pandemic of 1918 killed, by some estimates, 75 million plus worldwide. Even though trains were the fastest mode of transportation, in only a few weeks, most every corner of the US was experiencing people with influenza (the 'Spanish Flu' variety). Also, unlike most flu epidemic, this one caused more in their prime child bearing ages to die, those between the ages of 16 and 40. Unlike most cases of influenza which endanger the very youngest and oldest members of society (infants and young children, and older people), this strain of influenza caused a severe autoimmune reaction that was deadly to young and middle age adults! This took out more of both males and females from the "mating pool" of persons. • The passage and implementation of Prohibition in the early 1920's, seemed to 'dare' people to break the law. I believe that more and more people, over time, breaking this man-made law, led to more and more likely breaking God's laws of chastity before marriage, and total sexual fidelity afterwards, leading both the more women getting pregnant outside of marriage; hence even fewer ultimately getting married, and for the great spread of STD's to occur, still further inhibiting marriage prospects, and actual marriage and family formation. • Increased consumer debt led more and more people to work longer hours, and to avoid having children, so they could pay back their debts. • Rural areas suffered from economic depression much DURING the 1920's, while ever more people flocked to get work in and live near big cities. Pursuing great pay, and pleasure, diverted more and more people from having the larger families couples use to have in decades before. • As the economy had lots of competition, then, like now, immigrants, then, both illegal AND ALSO LEGAL immigrants were eschewed. In 1924, a major anti-immigration law was passed in the US that significantly reduced the number of immigrants coming into the US from what there had been before. • All of the aforementioned factors, contributed ever more to fewer couples getting marred, and fewer babies being born. • In 1926, this culminated with the beginning of a decline in housing starts. • In early 1929, demand for housing dropped like a rock. Fewer and fewer new houses being built and bought meant fewer and fewer home mortgages being put together. Mortgages being the "bread and butter" large loans banks lived off of, eventually contributed to a decline in their portfolios, stability, and ability to stay sufficiently liquid. • After the stock market crash in October 1929, not only was demand reduced because workers were laid off, but overall latent demand was shrinking due to fewer and fewer people getting married; and fewer and fewer children being born. •Post WWII had a 'boom', not due to 'war spending', but to a supposed 'baby boom'. HOWEVER, the number of children born per couple from 1946 - 1964 was LOWER than the proportion of babies born to married couples from 1900 - 1910. (But nobody has ever heard of the 'baby boom' of that era). Why NOT? Because, the post-WWII 'baby boom' can be compared to a long skinny python. Where the 'boomers' were born (1946 - 1964) is where we can see a long skinny pig inside the python. Where the 'pig' is looks 'fat', not because it really is—it only APPEARS that way, because on either side of it, the python appears MUCH skinnier! Hence, it is where the 'books' are more defined by the 'bookends' than by the 'books' themselves. There was a baby birth before the 'pig' was "swallowed", and there's pretty much been one almost ever since (the US has been in a 'birth dearth' since 1971, when I was just a junior in high school). I'm 64 now. Given our demographics in regards to babies born NOW, is far worse than it was THEN, the period of "prosperity" we think we are now in will (eventually - could be sooner, or later) will reveal itself to be FAR, FAR, FAR WORSE than the (relative) 'picnic' that was had in the 1930's! Worse, the 'pyramid' (Ponzi) scheme we've been in since 1936, should likely, within not too many years (if that long) begin IMPLODING in earnest—making even Venezuelan socialists look almost conservative (in comparison). A week or 2 ago, the Chinese put out that they were contemplating either to quit buying US Treasuries, or to start dumping them on the bond market, causing a shudder there! We can't continue with this Ponzi scheme, where there are ever fewer workers for retirees and other recipients.

Thank you for the video. You have a very soothing demeanor.

Can you do a video about Jim Crow laws and one about talleysticks?

is this series available in a playlist?

There is a good deal to be learned by studying how depression triggers aligned in the past. So, to understand why the "Great Depression" occurred in the 1930s, one must look at what occurred during the years building up to the crash. A significant amount of the credit made available during the 1920s went into land speculation. A good primer on what occurred is found in the book "Only Yesterday" by historian Frederick Lewis Allen. Not only did investors become captured by the frenzy of the Florida land boom, this same frenzy occurred in many cities in response to population increases that triggered a significant increase in the demand for both commercial and residential land. An agricultural land boom also occurred during the First World War, during which time farmers borrowed heavily to expand their land holdings and production. A few years was required after the war ended for European farmers to recover, but by the mid-1920s global production exceeded demand, prices fell, farmers defaulted on loans when government guarantees were removed, and rural banks failed by the hundreds. As the land boom crashed, investors shifted heavily into the stock market, driving up prices well beyond what any fundamentals supported. Thus, by the end of 1929 the U.S. economy was stressed across almost all areas of production as well in the financial markets. To be sure, imprudent bank lending deepened the crash and lengthened its duration, but it was a crash in the making because of the failure to utilize tax policy to tame the credit-fueled, speculation-driven land markets. A few economists (e.g., Harry Gunnison Brown, Scott Nearing and John R. Commons) had argued the case made in the late 19th century by Henry George, who showed that cyclical booms and busts would be tamed only if the full or nearly-full public capture of the potential annual rental value of land and of rents from other sources (e.g., the broadcast spectrum) became public policy. Harry Gunnison Brown was joined over the succeeding decades by a small group of economics professors who continued to make Henry George's case. One could argue that recessions that began again following the end of the Second World War would have been even worse if local governments did not capture some land rent via the taxation of real estate. However, as land prices climbed property assessments rarely kept pace. This made speculation in land an even more profitable investment. Relying on out-of-date assessed valuations rather than current market values created a serious analytical problem for government statisticians. They simply did not understand that any increase in the price of land is inflationary and did not include such increases in their calculation of inflation. Another failure has been to accurately calculate the annual aggregate rent that is privately captured as unearned income (whether imputed or actual). Since the administration of Ronald Reagan, the federal government has not monitored land prices. The figures utilized in the econometric models relied upon by the Congressional Budget Office and the Federal Reserve are around 5 percent of the actual potential rent in the economy (see Joseph Stiglitz or Mason Gaffney on this particular problem). I offer here a very rough estimate of the rent attached to just one part of the economy, the residential property market. At mid-2020, the median price of a single-family property was around $295,000. There are about 140 million existing housing units in the United States. If we assume a fairly conservative median land-to-total value ratio of 35%, this means that the aggregate residential land value in the U.S. is $103,250 per property, multiplied by 140 million = $14,455,000,000,000 ($14.455 trillion). Economic theory tells us that this aggregate land price occurs because of the capitalization of the net amount of rent that remains in private hands after taxation. If most or all of the rent were captured via taxation there would be nothing to be capitalized and land prices would fall to very close to zero. What the rent fund might be depends on the discount rate. If we assume that investors will invest in land if they can obtain an annual increase of 5%, the the rent fund would be calculated as follows: 5% of $14.455 trillion = $722.75 billion of rent JUST for the land under existing residential buildings. Add in the number of vacant residential lots around the U.S. and this figure will increase considerably. Tragically, the public capture of land rent never became public policy, allowing the land market cycle to operate from boom to bust. It is on schedule to crash again in 2026. I have prepared a relatively short video in support of this forecast for anyone who reads this and has an interest in more details: https://www.youtube.com/watch?v=fmA6ZPs-wus

I'm here 2021 to tell you THE MOTHER OF ALL CRASH is coming

This says alot about america's economical history during the great depression.

Say for instance that I the wealthiest man in America at that time and the wealthiest Banker in America at that time quietly exit the stock market weeks before the great crash would you believe I had something to do with it

I absolutely love this channel! Sure they are biased towards Liberal Doctrine ( in the name), i love the way they show actual events in the manner they believe happened, some government regulations should always be imposed (anti-monopoly laws and consumer protection acts) otherwise monopolies become obvious (Drug pricing, oil pricing, climate change is mostly due to 100 global companies) and wealth (not as capital but as money) is distilled to just a few global players. I love this channel, its a little propaganda-ish and i love it!

The only theories that explain completely the causes of the Great Depression are those presented by the Austrian Economic School. Read Mises, especially, and you will find an extraordinary explanation. Saying that speculation was the cause of the crisis is so dumb!

"A cycle developed where deflation discouraged farms and businesses from production because the final sale price would be too low to recoup costs." This is a rather confusing statement. It seems like this pushes toward equilibrium rather than a spiral. As production decreases (i.e. as the supply of goods decreases), the price should rise, which would counteract the deflation. My understanding of a deflationary spiral is that consumers realize that deflation is occurring, and so they begin to hoard cash, thus decreasing aggregate demand, thus causing more deflation. But that doesn't seem to be the positive feedback loop you are referring to when you say "a cycle developed".

Hi, I'm from 2022, I'm here because the great depression of the 21th century just started. Cheers!

Stock market losses were a huge force in the depression - everyone and their dog was on margin, literally people were thinking stocks only went up, when they crashed people got bankrupted and repoed - t This is a huge part of Rothbard why is this overlooked here

Can someone explain it to me in easy english please?/ Kann es mir bitte jemand erklären? ich verstehe nichts.

As harmful as rapid deflation was, even it is overrated as a cause of the Great Depression. Prices fell even faster in the four years after the Panic of 1839 yet not only was there no Great Depression, GDP actually rose 4% per year in the four year aftermath. Difference? Prices and wages were flexible in 1839 and adjusted rapidly to clear the market for labor and products. In the 1930's both Hoover and FDR did everything possible to could to keep prices and wages rigid downwards (Hoover's high wage policy, Federal Farm Bureau, FDR's National Recovery Act, AAA, Wagner Act, all price control programs), creating price floors and unsold surpluses of goods and labor. Doubling taxes on average Americans (1932), raising the top income tax rate to 65% (1932) and 79% (1936), a new "Undistributed profits tax" (1936), doubling real government spending (1929-1933), and launching the Smoot-Hawley trade war didn't help either. =========== “During the Great Depression, as unemployment peaked at 25 percent of the labor force in 1933, U.S. production of goods and services collapsed by 30 percent. During the earlier nineteenth-century contraction [1839-1843], investment fell, but amazingly the economy's total output did not. Quite the opposite; it actually rose between 6 percent and 16 percent. " "This was nearly a full-employment deflation. Nor are economists at any loss to account for this widely disparate performance. The American economy of the 1930s was characterized by prices, especially wages, that were rigid downward, whereas in the 1840s, prices could fall fast and far enough to quickly restore market equilibrium.” -“Martin Van Buren: The American Gladstone,” Jeffrey Rogers Hummel “As some detailed estimates by economic historian Peter Temin show, the contraction in the money supply was even greater in 1839-43 than in 1929-33. The fall in the price level was substantially greater: -31 percent in 1929-33 and -42 percent in 1839-43. "But consumption in real terms, which decreased by 19 percent in 1929 to 1933 increased 21 percent from 1839 to 1843. More dramatically still the real gross domestic product, which decreased by no less than 30 percent from 1929 to 1933, increased by 16 percent from 1839 to 1843.” -“The Rise and Decline of Nations,” Mancur Olson