Great Depression

Also called: Depression of the 1930s · Topic: The Making of a Global World · NCERT: Class 10, Ch 2 "Nationalism in India"; Class 10, Ch 3 "The Making of a Global World"; Class 12, Ch 1 "Colonialism and the Countryside"

Meaning

The Great Depression was a worldwide economic slump that began around 1929 and lasted till the mid-1930s. During it, production, jobs, incomes and trade all fell sharply across most of the world, and farm prices fell further and for longer than the prices of factory goods.

It matters because it shows how closely colonial India was tied to the world economy. In India it ruined peasants and cut trade by about half. The rural anger it caused fed straight into the Civil Disobedience Movement.

Explanation

Background and causes

• The trigger: the US stock market crash of 1929
• Share prices had climbed far above what companies were really earning.

• Over four trading days, from Black Thursday (24 October) to Black Tuesday (29 October) 1929, the Dow Jones Industrial Average fell from 305.85 to 230.07 points [2].

• Cause 1: farms grew too much (agricultural overproduction)

• Crop prices fell. To keep the same income, each farmer grew more, not less.
• More crops meant a bigger glut (more goods than buyers), so prices fell even further.

• Produce rotted for want of buyers. What made sense for one farmer was ruinous when every farmer did it.

• Cause 2: the world depended on US loans

• In the first half of 1928, US overseas loans were over $1 billion. A year later they had shrunk to one-quarter of that.
• When American lenders pulled their money back, major European banks failed and the British pound sterling collapsed.
• In Latin America, prices of commodities (raw goods such as coffee, beef and minerals) fell even harder.

• Under the gold standard (a system in which currencies were fixed to gold), central banks in other countries had to raise interest rates to fix their trade gaps with the USA. This cut spending and investment in those countries even more [2].

• Cause 3: the USA closed its doors (tariffs)

• The USA doubled import duties to protect its own producers.
• The law behind this was the Smoot-Hawley Tariff Act, passed in June 1930. It put high duties on many farm and factory goods [3].
• In reply, about two dozen countries raised their own tariffs within two years. World trade fell by about 65 per cent between 1929 and 1934 [3].
• According to Britannica, protectionism did not cause the Depression, but it made it worse and blocked recovery [3].

How the USA was hit

• Banks cut lending at home and called back loans they had already given.
• Families could not repay. They lost homes, cars and consumer durables bought on hire purchase (paying in instalments).
• By 1933, over 4,000 banks had closed.
• Between 1929 and 1932, about 110,000 companies collapsed.
• Banking panics in the early 1930s left less money to lend, so the slump grew deeper [2].
• A modest recovery came by 1935. Its effects on society, politics and people's thinking lasted much longer.

Impact on rural India

• Trade nearly halved. India's exports and imports fell to about half between 1928 and 1934.
• Wheat prices in India fell by 50 per cent.
• The colonial government refused to cut its revenue demand.
• Crop prices had halved, but the tax bill stayed the same.

• So a peasant had to sell about twice as much grain to pay the same tax. This was the heart of the rural crisis.

• Peasants who grew crops for the world market were hit hardest. They had nothing to fall back on when foreign demand disappeared.

• The jute case in Bengal
• Bengal grew raw jute, which was made into gunny bags (sacks) for export.
• Gunny exports collapsed, so raw jute prices fell by more than 60 per cent.

• Growers who had borrowed money to grow more fell deeper into debt. They complained that traders "will pay only Rs 5 a maund" (a maund is an old Indian unit of weight, about 37 kg).

• Gold left India

• To survive, peasants used up their savings, mortgaged their land, and sold jewellery and precious metals.
• As a result, India became an exporter of precious metals, above all gold.
• The economist John Maynard Keynes thought Indian gold exports helped the world recover.
• NCERT's view is that these exports helped Britain's recovery but "did little for the Indian peasant".

Results: rural revolt and urban gains

• The countryside was full of unrest. Rural India was in deep trouble just as the national movement was growing stronger.
• Civil Disobedience
• NCERT says Gandhi launched Civil Disobedience at the height of the Depression in 1931.
• The standard dates are different. Gandhi left Sabarmati Ashram on 12 March 1930 and reached Dandi on the Gujarat coast on 5 April 1930, after walking about 240 miles (385 km). On 6 April he picked up salt from the shore and broke the salt law [4].

• By the end of 1930, about 60,000 people were in jail. The Gandhi–Irwin Pact was signed on 5 March 1931 [4].

• Towns and cities felt the Depression much less.

• People with fixed incomes gained. Landowners living on rent and the salaried middle class received the same money while goods became cheaper, so their money bought more.

• Industry gained too. Under nationalist pressure, the government gave Indian industry tariff protection (higher duties on imported goods), and industrial investment in India grew.

• Key point: the same crisis pushed villages towards revolt and helped Indian industry in the towns.

Time, place and evidence

• Period: began around 1929 and lasted till the mid-1930s. A modest recovery came in the USA by 1935.
• Where it started: the USA, with the stock market crash on Wall Street, New York, between 24 and 29 October 1929 [2].
• Regions hit: the USA, Europe (bank failures, collapse of the pound sterling), Latin America (commodity exporters) and colonies such as India.
• Places in India: the Bengal jute belt, wheat-growing regions, and Sabarmati to Dandi in Gujarat (Salt March, 1930) [4].
• Key people:
• John Maynard Keynes, the economist who said Indian gold exports helped world recovery.
• Mahatma Gandhi, who led Civil Disobedience.

• Lord Irwin, the Viceroy who signed the Gandhi–Irwin Pact (1931) [4].

• Key law: Smoot-Hawley Tariff Act (USA, June 1930) [3].

• How we know:
• Stock market records (Dow Jones figures) [2].
• US banking and business figures: over 4,000 banks closed and about 110,000 companies collapsed.
• India's trade and price figures for 1928–1934.
• The Bengal jute growers' complaint about "Rs 5 a maund", recorded in the NCERT chapter.
• Keynes's own comments on Indian gold exports.

Don't confuse with

• Black Thursday vs Black Tuesday: Black Thursday was 24 October 1929, when the crash began. Black Tuesday was 29 October 1929, the worst day of the four-day fall [2].
• Smoot-Hawley Tariff Act vs the crash of 1929: the crash came first and set off the slump. Smoot-Hawley came later (June 1930). It did not cause the Depression, but it made it worse and slowed recovery [3].
• Salt March (1930) vs NCERT's "Civil Disobedience in 1931": the Salt March ran from 12 March to 5 April 1930 [4]. NCERT's Class 10 global economy chapter dates the launch of Civil Disobedience to 1931. In Prelims, use the 1930 dates for the march. When quoting NCERT, use its wording.
• Gold exports vs a sign of Indian prosperity: India exported gold in the 1930s because peasants were selling their savings to survive (distress sales). It shows how poor they had become, not how rich India was.

Prelims Hooks

• The US Depression in numbers: overseas loans were over $1 billion in the first half of 1928, and a year later only one-quarter of that. Over 4,000 banks closed by 1933, and about 110,000 companies collapsed between 1929 and 1932.
• The Dow Jones fell from 305.85 to 230.07 between Black Thursday (24 October) and Black Tuesday (29 October) 1929 [2].
• Smoot-Hawley Tariff Act passed in June 1930 (USA). World trade fell by about 65 per cent between 1929 and 1934 [3].
• India: exports and imports nearly halved between 1928 and 1934, wheat prices fell 50 per cent, and raw jute prices fell over 60 per cent (Bengal: "Rs 5 a maund").
• Trap: the colonial government did not reduce revenue demand during the Depression. India became an exporter of gold, which Keynes said helped world recovery.
• Chronology: Wall Street crash (Oct 1929) → Salt March (12 March to 5 April 1930) → Smoot-Hawley Act (June 1930) → Gandhi–Irwin Pact (5 March 1931) [4][5].

Mains Points

• The Depression shows that India was part of the world economy but had no control over it.
• A fall in American lending and in world demand reached the jute fields of Bengal within months.

• India suffered the shocks of a world market it did not shape. Halved prices, together with an unchanged revenue demand, ruined the peasants who grew crops for export.

• Economic distress fed the national movement.

• Rural anger gave Civil Disobedience its huge size and its base among peasants.

• In a GS-I answer, discuss the economic crisis and the political protest together, not as separate topics.

• The Depression had winners and losers, and it showed whose interests colonial policy served.

• Rent-receiving landlords, salaried townspeople and protected industrialists gained, while peasants lost. This explains why the nationalist demand for tariff protection was granted but the demand for revenue relief was not.
• Peasants' distress sales of gold helped stabilise Britain's finances but "did little for the Indian peasant". This is a concrete example for the drain of wealth argument.

Related concepts

• Gold standard
• Wall Street Crash 1929
• Smoot-Hawley Tariff 1930
• New Deal
• Keynesian economics

Read more

• The Great Depression and India