Great Depression in the United States

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For an annotated chronology of the main events, see the Timelines subpage;

for an article about events in the United States and elsewhere, see the article on the Great Depression;

for a summary of the relevant economic statistics, see the Tutorials subpage;

for definitions of terms shown in italics see the Glossary.

The early and mid-1920s

The condition of the United States in the 1920s differed markedly from its pre-war condition. The wartime destruction of much of Europe's productive capacity had made it the richest country in the world and Europe's wartime borrowing had made it the largest creditor. The full convertability of the dollar into gold under the gold standard which had been suspended during the war, was immediately resumed. There was a minor recesssion immediately after the war, followed by a resumption of strong output growth. The severest bout of deflation ever experienced in the United States was not during the Great Depression, but a decade earlier in 1920-21 when wholesale prices fell by 56% in a little over a year following a tightening of the federal budget, increases in Federal Reserve discount rates and a very sharp reduction in the monetary base.

There was nothing unexpected about the later turndown in the economy. On the contrary, a great deal of thought had been put into how to counter its next occurrence. In 1923, a committee appointed by Herbert Hoover (then Commerce Secretary) had published a 300-page report on the subject . The committee had regarded it as inevitable that every boom would be followed by a slump, and had considered how a future boom could be restrained and how the following downturn could be countered. Among their recommendations were the postponment of commercial and public investment projects and the control of credit expansion by the banks. Although he endorsed those recommendations at the time, he subsequently proposed severe limits upon the government's ability to act upon them. He has been quoted as saying - at the depth of the depression - that there should be "...no tampering or inflation of the currency"; that the budget should be "unquestionably balanced, even if further taxation is necessary"; and that "the Government credit [should] be maintained by refusal to exhaust it in the issue of securities" - which John Kenneth Galbraith took to amount to the rejection of both fiscal policy and monetary policy actions in face of a depression

Monetary policy in the 1920s was dominated by Benjamin Strong, a participant in the creation of the Federal Reserve System and first governor of the Federal Reserve Bank of New York. Strong maintained a close relationship with Montague Norman of the Bank of England, and in 1924 he maintained low interest rates in the United States, which by making the dollar lesss attractive, and sterling more attractive to investors, drove up the foreign exchange value of the British currency and facilitated Britain's return to the gold standard and in 1927 he forced through the Federal Reserve System a decrease in the discount rate from 4 to 3 percent which is quoted to have called "un petit coup de whisky for the stock exchange. This appeared to have been influenced by the previous Long Island meeting of central bankers of Great Britain, the United States, France, and Germany to discuss means of strengthening Britain's gold reserves and of the general European currency situation .

The mid-1920s came to be known as the "Coolidge Prosperity". President Coolidge declared that "The chief business of the American people is business" and his administration gave private business substantial encouragement, including construction loans, profitable mail-carrying contracts and other indirect subsidies .