Causes and Effects of the Great Depression
Directions: Complete the graphic organizer attached.
The Depression of the 1930s-Great Britian
There are two opposing historic images of the Depression in 1930s
Britain: poverty - lines of broken, unemployed men, rows of shabby
housing - and prosperity - new washing machines, automobiles,
electricity and cinemas.
Wall Street Crash
In 1929, the Wall Street Crash plunged the USA into economic
depression. The Americans were alarmed, so they called in their loans
to other countries and put up customs barriers to stop imports of
foreign goods. This created a depression across the rest of the world.
Unemployment in Britain rose to 2.5 million (25 per cent of the
workforce) in 1933. Worst hit were the areas of heavy industry (eg
coal, iron, steel, shipbuilding) in Northern Ireland, Scotland, Wales and
the north of England. These industries were already struggling because
they had not modernised after the war and had been badly affected by
competition from other countries. The Depression meant that now
these industries crumbled. For example, when the coal mine, the steel
works and Palmer's shipyard closed down in Jarrow in the north-east
of England, every single man in the town was made redundant
[Redundant: laid off from work because they are no longer needed ]
and Jarrow 'died'.
The people of Jarrow organised a march to London - a crusade to seek
help from the government, but they were told to go home and work
out their own salvation'. In fact, the government did not have a clue
how to cope with the Depression, and the policies it did put into action
were either useless, or made matters worse.
Key industries closed in Jarrow sparking the Jarrow Crusade.
In the south-east of England where new light industries such as
chemicals, electrical goods and automobiles had been developed,
families were affluent. In fact, people with jobs benefited from the
Depression because prices fell and they could buy more!
Causes of the Depression
The main trigger of the Depression was the Wall Street Crash, but
other factors also helped to create the Depression out of the Crash. To
understand them, you need to understand that the root of an
economic depression is a reduction in spending, and that the way to
end a depression is to get people to buy things:
Import duties - Import duties discouraged trade, which harmed the
economy. The reduction in trade particularly hit the shipbuilding and
railway industries if there was no trade, there was no need for
Savings - when there is unemployment and uncertainty, people cut
back on spending and save 'for a rainy day'. This then makes
businesses go bankrupt and causes the unemployment they feared.
Unemployment - unemployed people have no wage and cannot buy
things, which causes more businesses to go bankrupt and creates
Outdated practices - British heavy industry was out of date and labour-
intensive. When orders dried up, the only way they could cope was to
lay off workers.
Some Government actions made the depression worse: - The increase
in unemployment meant the government was faced with a vastly
increased expenditure on benefits. So in 1931, it raised income tax
and cut unemployment pay by 10 per cent and introduced the means
test. These measures reduced the amount of money people had to
spend and made the Depression worse. - The Import Duties Act
(1932) was designed to protect British industry, but this merely
reduced trade and made the Depression worse.
How did the government react?
These four actions made things worse:
Raising income tax.
Cutting unemployment pay by 10 per cent.
Introducing the means test.
Adding import duties to goods from abroad.
These four actions helped to end the Depression:
Came off the gold standard [Gold standard: Where the total currency
in a country is equal in value to the amount of gold that the country
owns. ] - this allowed the government to increase the amount of
money in circulation.
Reduced interest rates - this reduced people's debt payments and
made more money available to spend, but also encouraged them to
take out loans to spend more.
The Special Areas Act (1934) - tried to attract light industries to the
Local councils built 500,000 council houses, which pumped money into
Benefits of the Depression
Some people (especially in the south of England) become more
affluent during the Depression:
Prices fell in the Depression, which meant more money for luxuries.
Hire-purchase allowed people to get luxuries 'on the never-never'.
Family size fell, which meant more money for luxuries.
Improvements at work such as reduction in working hours, holidays
Holidays (at the seaside).
Three million new houses were built in the 1930s.
There was a 1200 per cent increase in homes with electricity.
Huge increase in car ownership.
Vacuum cleaners and washing machines.
Radios and the first TVs.
Better leisure such as cinema, dance halls, swimming baths and
A better diet. Free school milk was introduced after 1934
Better health, which meant people were taller, fitter and heavier.
Revision tip and answer preparation
Divide the facts in this topic into two lists - 'good things' and 'bad
things' about the 1930s.
As part of your revision, think about the arguments and facts you
would use to explain:
Why there was a depression in the 1930s.
To what extent Britain experienced a depression in the 1930s.
How effectively the government dealt with the economic problems of
Other Key Terms:
In order to qualify for dole, a worker had to pass a means test. The
Public Assistance Committees (PACs) put the worker's finances
through a rigorous investigation before they could qualify for benefit.
Officials went into every detail of a family's income and savings. The
intrusiveness of the means test and the insensitive manner of officials
who carried it out frustrated and offended the workers.
The government gave up the Gold Standard in 1931. The gold
standard was a way of making sure that the pound kept its value and
Britain did not suffer from the inflation that had ruined Germany's
economy in 1923 and 1924. Unfortunately, it also made it difficult for
businesses to borrow money for expansion because interest rates were
high. Similarly it made British exports expensive, depressing staple
industries further. Removing the gold standard helped, but the millions
of unemployed in the traditional industries noticed little improvement
in their lives.
Unemployment Act 1934
The 1934 Unemployment Act separated dole and insurance benefits,
and the 10 per cent cut in dole was reversed. From 1936 an
Unemployment Assistance Board (UEB) looked after workers who had
used up their insurance benefits. The UAB took over some of the work
of the Labour Exchanges and continued to administer the dole and
means test. UAB officials were less severe than officials from the Public
Assistance Committees, although reports from the Trades Union
Congress (TUC) in the 1930s show that there was still a great deal of
discontent with the low levels of benefit. The UAB set up training
schemes and provided help to workers who wanted to move to another
area to find work. Older unemployed men were sometimes given
allotments to grow vegetables or raise poultry and rabbits. Society
went some way towards accepting that unemployment was not a
failing of the people, dispelling the notion that the poor could work if
they really wanted to.
Special Areas Act
In 1934 the government passed the Special Areas Act. The Act
identified South Wales, Tyneside, West Cumberland and Scotland as
areas with special employment requirements, and invested in projects
like the new steelworks in Ebbw Vale. Success of the Act was limited
because the level of investment was not high enough and it was not
until the late 1930s that the shadow of unemployment lifted from
Britain, thanks in part to government investment in rearmament.
Despite the failings of government action, few people actually starved
to death as a result of unemployment - the dole was intended to keep
the unemployed alive and it had done exactly that. Some
commentators, such as the novelist George Orwell, believed the
limited level of assistance was a key reason why there was no major
social unrest in the period, and explained why extremist political
parties made little headway in Britain even though they prospered in
Background Failed Solutions Useful solutions
Do you feel that Great Britian dealt with the Great Depression effectively?