If they great depression was worldwide, why was there a depression at all?


If every country’s’ money was suddenly not worth as much, wouldn’t there be no effect? Like if the whole word decided collectively to make everything 50% cheaper, but make peoples pay also lower as well. Wouldn’t the buying power be the same?

In: 65

That’s not how an economic depression works.


What you are describing is basically a denomination change, which is something that actually happens and generally doesn’t cause too many economic issues. No self-respecting economist would consider that an economic depression.

That said, you are ignoring the effect of savings and investments. People with money saved would instantly be twice as rich. Which just…isn’t going to work. But if we assume that people’s savings are also halved it’s basically a denomination change.


What an economic depression actually is is when there is literally less *stuff* being made. We do measure that in dollar amounts because it’s easier to do that. But the dollar amount isn’t important, it’s the amount of *stuff* that matters.

A recession or depression isn’t caused by money losing value, it’s caused by less overall value being produced. Money is a way to measure that value, and to store that value, but the economy is basically made up of a nebulous concept called “value” that we create via work. Value is, basically, what lets us live and enjoy our lives.

Every time someone does work, they add value to the overall economy. In a simple farming community this is clear – farmers do work, that lets the community have food, everybody eats. If farmers get really good at farming, the community can have a few people do the farming and have other people do other jobs, like making clothing or housing. Now everybody eats *and* has clothing *and* has housing! Rinse and repeat this process for a few thousand years and we get the internet and factories and super specialized jobs that let us eat and be fed and have entertainment and pretty great lives!

But when that amount of value per person starts to drop – maybe because of bad crop yields, or wars, or over-investment in things that don’t end up producing enough value – then we start to regress. Suddenly we might not have enough food – or we have enough food, but not enough other things people want. Because of normal wear and tear, things break but we don’t have the ability to replace them with new ones.

That’s what a depression (or a recession, which is the “more correct” term) is – it’s when there’s suddenly less value to go around, so people’s lives in general get a little worse, and the only way out of it is to find ways to produce more value again.

Recessions are a feature of capitalism. Workers do not own the means of production but are paid by capitalists to do the work.

If a farmer who owns their own land and seed needs money, they work the farm. The grow crops to sell to get money. They have everything they need to do the work.

But if a factory owner and workers need money, the factory owner cannot pay the workers to do work and the workers do not have a factory to do work on their own. So work is not done and goods are not produced.

A recession is self-perpetuating. If factory owners lay off their workers, they buy less, so the factory owners have less money and lay off more workers.

Someone has to be spending or loaning money to make a capitalist economy work. When spending and loaning decreases, the economy slows down.

A depression isn’t money losing value relative to others, it’s a slowdown in economic activity. Everywhere, people stopped spending, stopped manufacturing/growing, etc.

People had even less money. If goods go down in price, it means the money is seen to be worth relatively more and people hoarded money. That caused even less spending.

Douglas Irwin has a paper about one possible root cause: