Long depression

Definition

The long depression refers to a prolonged period of economic stagnation that began in the United States and Europe following the Panic of 1873, lasting until the late 19th century. This era was marked by deflation, high unemployment, and significant social unrest, as economies struggled to recover from financial collapse and adapt to industrialization.

5 Must Know Facts For Your Next Test

1. The long depression is often considered to have started with the Panic of 1873, which led to a series of bank failures and a collapse in the rail industry.
2. During this period, unemployment rates soared, reaching as high as 14% in some regions, causing widespread hardship for many American families.
3. Deflation characterized the long depression, with prices falling significantly and businesses struggling to maintain profitability.
4. The economic struggles of this period prompted major reforms in labor laws and the rise of labor unions as workers sought better conditions and pay.
5. The long depression finally began to fade as countries shifted towards more expansionary monetary policies in the late 1880s and early 1890s, paving the way for future economic growth.

Review Questions

• How did the Panic of 1873 initiate the long depression, and what were its immediate economic effects?
  • The Panic of 1873 triggered a financial crisis when a major bank collapsed, causing a domino effect on banks and businesses across the country. This led to widespread bank failures, credit contraction, and a dramatic decline in investment. As a result, the economy entered a period of prolonged stagnation known as the long depression, marked by high unemployment rates and deflation that affected both industry and consumers.
• Discuss the role of deflation during the long depression and its impact on economic recovery strategies.
  • Deflation played a significant role during the long depression by causing prices for goods and services to drop sharply. This decrease in prices discouraged consumer spending and investment, leading businesses to struggle with profitability. Economic recovery strategies had to address these challenges by implementing measures such as monetary policy changes, including increasing the money supply or lowering interest rates, which were crucial in combating deflation and stimulating economic growth.
• Evaluate how the long depression influenced social movements and labor rights in the United States during the late 19th century.
  • The long depression significantly influenced social movements, particularly the labor movement, as economic hardships led to increased worker dissatisfaction. High unemployment and poor working conditions spurred workers to organize into unions and advocate for better wages, hours, and safety standards. The resulting push for labor rights not only changed workplace conditions but also reshaped public policy regarding labor laws, laying the groundwork for future reforms in workers' rights.

Related terms

Panic of 1873:

A severe financial crisis triggered by the collapse of a major bank, leading to a widespread economic downturn and initiating the long depression.

Deflation:

A decrease in the general price level of goods and services, often leading to reduced consumer spending and investment during economic downturns.

Labor Movement:

A social movement advocating for the rights of workers, which gained momentum during the long depression as unemployment and poor working conditions sparked demands for reform.