Would no WWI mean no Great Depression?

[phx1138]

One of the main products of farmers was hay and oats which fed horses. Fewer horses meant less market and less income for farmers

That's a myth, actually. The number of horses actually rose after the introduction of tractors. (IDK why... I think it has something to do with getting produce from farm to railhead.)

plus a tractor gave a single farmer the ability to farm a larger land with fewer workers. All this drove many people from farming and rural america.

It also meant farmers had more disposable income, so more opportunity to buy consumer goods. And the price of food would come down thanks to higher production.

The droughts would still have come.

Since that was a product of weather (or climate), maybe not: the drought in the U.S. was a result of a tiny seawater temperature reduction. Without the War, does the Pacific cool that crucial half a degree? Does it actually warm half a degree or more, & produce flooding? Or just drought in other countries? IDK...

 

[yourworstnightmare]

The Great Depression was a result of over confidence in the market which lead to a situation where production greatly exceeded the demand. This could possibly have happened without WW1 too. But then again it might not have, all have to do with how the economy was handled in the 20s.

 

[Starkiller501]

I believe that the Depression wouldn't have happened, as it did. The world economy will always have someone on the crapend of the stick.

Maybe, it would have turned into a global Depression. But, since WWII was, in some ways, caused by the fallout from WWI, there wouldn't be a war, to shock the economy into shape

 

[Richter von Manthofen]

It also meant farmers had more disposable income, so more opportunity to buy consumer goods. And the price of food would come down thanks to higher production.

Ant this lower food price would lower the income of farmers who then can't afford to buy consumer goods

The big difference between earlier crashes and the crash of 1929 was that early crashes mostly affected "the rich" i.e. the people who could afford to buy stocks, but the 1929 "also" affected "the poor" as more peoplo could afford to buy stocks (because many of them were paid with loaned money). This intensified the crash as with sinking share value the loans could not be paid back which led to further decrease in share value which... don't forget that consumption of luxury goods was for the first time quite widespread - suddenly the demand plummeted as many people no longer had the money...

Additional factors were the widespread availability of radio (information speed increases) and the dump caused by WWI and subsequent rise of the economy (roaring 20s) which made the crash being felt the more severe...

 

[phx1138]

Ant this lower food price would lower the income of farmers who then can't afford to buy consumer goods

No, it wouldn't. The price paid to the farmer is a tiny fraction of the retail price. Even when retail prices are artificially high, the prices paid to farmers (grain or dairy) can be barely above subsistence. OTL, they've been at about that level for more than 20yr. Retail food prices have gone up in that same period...

 

[Richter von Manthofen]

If there is more food production the first thing affected is the "producer" price - the more grain/whatever is on the market the lower the price (basic economics)

Sure the retail price is higher than the "producer price"

you have to add the margin for processing and whole and retail sale.

If you enlarge the availability of primary foodstuffs (meat, grain,...) at first the food processing industry will pay less per unit - as bigger supply means the processor will seek the cheapest supplier.

At first the processing capacity will stay the same (assume producer operate at full or almost full capacity), so the food processing industry will pay less for the same amount of foodstuffs. And this LOWERS the income of farmers "on average".#

As you correctly said that retail price is much higher than producer price the retail prices are NOT affected (much) at first. All the links on the "food chain" from farmer to consumption are largely unaffected. the lower cost for food processors is translating in a higher profit for the processors (lower price for raw materials and same retail price)

Only this higher profits will lead (later) to an expansion of the food processing industry as plants will be enlarged to make more money with more "volume".

This later development will lead to lower consumer prices for foodstuffs as there is only a certain demand for food. And this again lowers the profit for food processors who in turn will try to saddle this lower profit on the farmers. = even less income for farmers.

I did not forget that you can export food to "get rid" of the surplus (base and processed), but an expansion of production on the premise of better technology will probably mean that foreign farmers also have access to this technology, so probably even foreign markets will not yield the same profit - even less price as you add to the volume of available food abroad.

So the conclusion is that if you expand the production of raw materials without a higher "demand" you will lose money.

This actually conforms with the development over the last 100 years - retail price for food is (adjusted for inflation) lower than it was and more of the available income (average population) is spent on other (luxury) goods instead.

Only because a lower percentage of the total population is working on farms farmers can earn enough to sustain themselves, but the total income of farmers is lower than it was (less producing more - some might even have become richer, but for the price that we now have fewer farmers, but larger farms)

 

[Richter von Manthofen]

BTW countries that have a (fast) growing population often don't have the money to buy surplus food abroad for high(er) prices, so even this does not help our poor midwest farming communities.

 

[phx1138]

If there is more food production the first thing affected is the "producer" price - the more grain/whatever is on the market the lower the price (basic economics)

Sure the retail price is higher than the "producer price"

you have to add the margin for processing and whole and retail sale.

If you enlarge the availability of primary foodstuffs (meat, grain,...) at first the food processing industry will pay less per unit - as bigger supply means the processor will seek the cheapest supplier.

At first the processing capacity will stay the same (assume producer operate at full or almost full capacity), so the food processing industry will pay less for the same amount of foodstuffs. And this LOWERS the income of farmers "on average".#

As you correctly said that retail price is much higher than producer price the retail prices are NOT affected (much) at first. All the links on the "food chain" from farmer to consumption are largely unaffected. the lower cost for food processors is translating in a higher profit for the processors (lower price for raw materials and same retail price)

Only this higher profits will lead (later) to an expansion of the food processing industry as plants will be enlarged to make more money with more "volume".

This later development will lead to lower consumer prices for foodstuffs as there is only a certain demand for food. And this again lowers the profit for food processors who in turn will try to saddle this lower profit on the farmers. = even less income for farmers.

I did not forget that you can export food to "get rid" of the surplus (base and processed), but an expansion of production on the premise of better technology will probably mean that foreign farmers also have access to this technology, so probably even foreign markets will not yield the same profit - even less price as you add to the volume of available food abroad.

So the conclusion is that if you expand the production of raw materials without a higher "demand" you will lose money.

This actually conforms with the development over the last 100 years - retail price for food is (adjusted for inflation) lower than it was and more of the available income (average population) is spent on other (luxury) goods instead.

Only because a lower percentage of the total population is working on farms farmers can earn enough to sustain themselves, but the total income of farmers is lower than it was (less producing more - some might even have become richer, but for the price that we now have fewer farmers, but larger farms)

I find myself agreeing with this. If I didn't before, I was stupid.

Without WW1, the prewar production is likely to pertain. That suggests the trend to larger & corporate farming will be much slower...tho the drought & subsequent failures mean it won't slow enormously.

 

[Julia Augusta]

I believe that the Depression wouldn't have happened, as it did. The world economy will always have someone on the crapend of the stick.

Maybe, it would have turned into a global Depression. But, since WWII was, in some ways, caused by the fallout from WWI, there wouldn't be a war, to shock the economy into shape

Oh god, I always hate the view that WW2 cured the great deression.

There was no positive multiplier effect going on at all. Consumption shrank. In general, there is actually a multiplier of around .8 or less from what i have read, which meant that the government spending on military build-up crowded out private investment.

 

[Deleted member 1487]

Oh god, I always hate the view that WW2 cured the great deression.

There was no positive multiplier effect going on at all. Consumption shrank. In general, there is actually a multiplier of around .8 or less from what i have read, which meant that the government spending on military build-up crowded out private investment.

Its much more arguable that the infrastructure investments in 1940-1 were a major reason the depression ended along with the savings that built up during the war by the populace and then the policies post war as the consumer economy returned; things like the GI Bill created major opportunities for growth later, as suddenly a huge part of the population suddenly had access to university, which they never had before. Even the Marshall Plan helped create post war orders for US industry, while Eisenhower's investments in infrastructure set the stage for the 'go-go 60's'.
Really it was the New Deal through the Eisenhower years that 'cured' the Great Depression and set the stage for unprecedented growth for the US.

 

[Julia Augusta]

Its much more arguable that the infrastructure investments in 1940-1 were a major reason the depression ended along with the savings that built up during the war by the populace and then the policies post war as the consumer economy returned; things like the GI Bill created major opportunities for growth later, as suddenly a huge part of the population suddenly had access to university, which they never had before. Even the Marshall Plan helped create post war orders for US industry, while Eisenhower's investments in infrastructure set the stage for the 'go-go 60's'.
Really it was the New Deal through the Eisenhower years that 'cured' the Great Depression and set the stage for unprecedented growth for the US.

I would still completely disagree with that view. The recovery from the great depression was due to monetary policy, and fiscal policy itself had a negligible effect. If anything, would imagine the new deal, through programs like the NRA lengthened the depression.

 

[snerfuplz]

(Panic of 1907, 1893, 1877, 1857, 1837, etc)

Just to nitpick but the Panic you are referring to in 1877 was part of the Long Depression which was worse then the Great Depression

 

[RousseauX]

Oh god, I always hate the view that WW2 cured the great deression.

There was no positive multiplier effect going on at all. Consumption shrank. In general, there is actually a multiplier of around .8 or less from what i have read, which meant that the government spending on military build-up crowded out private investment.

It wasn't an investment or supply side problem, it was a demand side problem which the massive works program of WWII resolved.

 

[Julia Augusta]

It wasn't an investment or supply side problem, it was a demand side problem which the massive works program of WWII resolved.

I really don't think you understand economics at all. When money was spent on the war, overall output of the economy shrank. The government was destroying money by using it on the war.

This of course does not mean the war shouldn't have been fought. WWII was one of the few just wars. The Nazis were terrible and had to be stopped. But, the war did not save our economy, it actually hurt us.

Of course, this should make sense, the war is competing for the same resources most of the civilians want.

 

[Carl Schwamberger]

Just to nitpick but the Panic you are referring to in 1877 was part of the Long Depression which was worse then the Great Depression

Any acessble literature on this, books or the web? The little I've seen was so academically obtuse it was difficult to read.

2. Were the 1820s or 1830s also a period of long running economic malaise?

Of course, this should make sense, the war is competing for the same resources most of the civilians want.

Indeed

Well paying jobs, but to few consumer goods, housing shortages, transportation costs high. Then there is the matter of servicing the government debt incurred to pay for the construction of war goods manufactoring. False prosperity masked by the poverty of the previous decade.

 

[RousseauX]

I really don't think you understand economics at all. When money was spent on the war, overall output of the economy shrank. The government was destroying money by using it on the war.

No it didn't, arms production would be consider a part of the overall output by definition.

If you are talking solely about consumer goods than that is another matter, however, then you have to provide some data which shows that the living standard, on the average, during the Depression was better than an American during the war.

 

[Julia Augusta]

No it didn't, arms production would be consider a part of the overall output by definition.

If you are talking solely about consumer goods than that is another matter, however, then you have to provide some data which shows that the living standard, on the average, during the Depression was better than an American during the war.

Uggh... I hate teaching economics, yet I hate hearing poor economic reasoning even more.

Okay let's start with something simple. Opportunity cost is what you give up when you get something. This is incredibly important.

GDP is a measure of the economy. It is the measure of the price of all final goods and services sold in the economy. It is an okay measure of the economy. Personally I don't like it that much, as it is very keynesian and focused on spending, but it is fine.

GDP = Consumer Spending + Government Spending + Investment+ Exports - Imports

Y= C+I+G+X-M

When there is a dip in GDP, Keynesians will try to get gdp back up by increasing governmnet spending to make up for the "slack" in the economy. Simple right. No.

Governmnet is financed by two ways. Taxes, and Bonds(i.e future taxes). By taking money out of the C and I, you are reducing GDP in other sectors. That money would have spent elsewhere.

So how does Governmnet spending increase GDP, well I am glad you asked. Through fiscal multipliers. For example one dollar spent by the government becomes 1.5 dollars, which increases GDP. However it depends on what you spend it on.

Of course it can work in the opposite direction. Government Spending can crowd out Private investment and actually decrease GDP. For example in the case of military spending, 1 dollar can becoming 80 cents and decrease overall GDP.

While yes output has risen, the opportunity cost was a better economic standpoint, albeit Let Hitler overun Europe, let the soviets fight them and not care that millions of people in Europe and Asia were starving and being oppressed by pretty evil motherfuckers. So while the cost was worth it, there were tradeoffs. War is expensive, and don't let anyone fool you otherwise.

Note: This is a vast simplification as I do not want to confuse anyone with too much technical jargon and it 3 in the morning where I live

 

[Richter von Manthofen]

Maybe I get something wrong here - as English is not my first language, but concerning economics.

But I try to do a simple example economy

If you have a plant that produce tractors during "peace" or tanks "at war" (or preparing for war)

If you produce a tank - thats it - the tank does not produce anything else (except destruction)

If you build a tractor . the tractor is used to produce food (and it should produce more than its worth over time)

So simply put Tank costs 1.000 units a piece
Tractor costs 1.000 units and produces 110 units of (additional) food over 10 years

so after 10 years you have a total production of 1.000 units in war material, but 2100 units in peacetime-assets

After 10 years both tank and are no longer useful and your economy is 0 worth if you make a tank and 1100 worth if you make a tractor.

you can't buy a new tank as you are broke now, but you can buy a new tractor for 1.000 and keep 100 as net gain.

Simply put : in the long run peaceful communities are richer than warring (and that does not count in that in wartime many assets are desroyed too)

Of course one has to maintain an army as without it your neighbour would simply take your gains away with his army But you can (long run) pay your weapons only with the surplus you get out of your peaceful investments.

take our example your simple economy would balance if you build 10 tractors and 1 tank each year...

In the short run a war DOES increase production as you immediately have to build more weapons and in asddition you have to replace your workers that become soldiers with additional workers (maybe women that did not work so far). But the production of weapons eats up your "reproductive" capacity. sou you miight build instead of 10 tractors and 1 tank : 5 tanks and 10 tractors (you need 10 tractors to feed your population). - you can't sustain that for long though

 

[wietze]

No WW1 pretty much will butterfly away the spanish flu pandemic.

A suggestion was made that a change in population growth contributed to the great depression. So no pandemic means 70-140M more people (50% of them in 20-40 range) able to work and spend money. should stabilise it a little more.

 

[RousseauX]

Uggh... I hate teaching economics, yet I hate hearing poor economic reasoning even more.

If you are going to teach economics and call the other person stupid you should at least get the definition of "overall output" vs "opportunity cost" correct which is something even first year undergrad should know.

GDP is a measure of the economy. It is the measure of the price of all final goods and services sold in the economy. It is an okay measure of the economy. Personally I don't like it that much, as it is very keynesian and focused on spending, but it is fine.

I agree, but "overall output" implies GDP here

While yes output has risen, the opportunity cost was a better economic standpoint, albeit Let Hitler overun Europe, let the soviets fight them and not care that millions of people in Europe and Asia were starving and being oppressed by pretty evil motherfuckers. So while the cost was worth it, there were tradeoffs. War is expensive, and don't let anyone fool you otherwise.

Note: This is a vast simplification as I do not want to confuse anyone with too much technical jargon and it 3 in the morning where I live

I'm glad that you admit that you were wrong in your previous post there. But right now you are making the argument of the lost opportunity cost of military spending and that military spending isn't the most efficient way of government spending (which I agree with), but your claim that "overall output fell" is simply and blatantly wrong.

Of course it can work in the opposite direction. Government Spending can crowd out Private investment and actually decrease GDP. For example in the case of military spending, 1 dollar can becoming 80 cents and decrease overall GDP.

Actually fiscal multiplier is not a constant but varies with regards to propensity to consume, your GDP formula actually look like this

GDP = Consumer Spending + Government Spending + Investment+ Exports - Imports

Y= C+I+G+X-M

Is actually

Y = C0 + C1(Y-T) + G + I + NX

Therefore:

Y = (C0 -C1*T + G + I + NX)/(1-C1)

When the propensity to consume is low (as they are during depressions) one additional unit of tax cuts has a low multiplier effect and it produces the effect of

(C1*T - G) / (1-C1), 0< C1 < 1