The Great Depression vs. the Great Recession

A look at the value of the US dollar in 1929 and 2008; what has changed and where that leaves us today

By Benzinga Oct 6, 2011 4:08PM
By Marco Rabinowitz, Benzinga Staff Writer

How did the purchasing power of the US dollar change in the Great Depression and the Crash of 2008 and what can this information tell us today, three years after the Crash of 2008?
Many have drawn parallels between the current global financial crisis and the Great Depression of the 1930s. Analysts have not been shy in claiming that the current global financial crisis is the "worst since the Great Depression." Nobel Prize-winning economist Paul Krugman even recently mentioned on his blog that he's "got that 30s feeling, all the way."

As tempting as it may be to draw parallels between the Great Depression and the Crash of 2008, we have to remember that the world of today is radically different than the world of the 1930s. In comparing the US economy of the 1930s to today, there are substantial differences in everything -- from what people wear, to what people eat, to how people get to work.
Economists cannot look past these differences. But we still use the US dollar and we still require economic activity to function as a society and nation. Given that, perhaps there are things we can learn about the value of a currency in the wake of stock market crashes and depressions.

By the sweat of your brow you shall eat bread

Though the food we eat today may be different from the tastes of the 1930s, some aspects of our diet have not changed. Take for instance a staple of the human experience: a loaf of bread. Some people regard a loaf of bread as an economic standard (similar to the Big Mac Index). In 1930, you could buy a loaf of bread in the US for nine cents. Today a loaf of bread can cost you roughly $1.98 in the same currency.

That may sound like a substantial difference. But the average salary per year in the U.S. in 2009 was $40,712 and in 1970 was $1,970. Though price comparisons between 2011 and 1930 may not always be absolute or uniform in difference, they reflect changes in not only the societal perception of value, but also the American way of life. While we discuss purchasing power differences between the 1930s and today, it is important that we do not overlook societal and microeconomic developments in American culture such as gender equality, civil rights, and key inventions like the microwave or the washing machine.

During the Great Depression, the Consumer Price Index (CPI) stood at 17.3 in October 1929, reached a bottom of 12.6 in May 1933, stayed around 13 or 14 for the remainder of the 1930s, and did not reach 17.3 again until April 1943. In comparison, the CPI was at 216.573 in October 2008, fell a handful of points through 2009, and regained its footing to 218.178 in May 2010. This appears to suggest that where the US fell into deflation in the 1930s intensifying the crisis, the Crash of 2008 has spared us a deflationary spiral that would have prolonged a recession. Three years after the stock market crash in the 1930s, the CPI fell to 13.3. In comparison, as of August 2011, the CPI stands at 226.545. Compared to the 1930s, we are not in such bad shape (yet).

If we take a look at the inflation rate of the US following the 1930s stock market crash, we can see that the inflation rate fell into a deflationary pit (bottoming near -10%) that stuck around for about four years. In comparison to the Crash of 2008, the US appeared to slip into a slight deflationary gully (bottoming near -2%) for a single year. One might use the analogy of the 1929 economy tripping up and falling into a ten-foot-deep hole and the 2008 economy tripping up and falling into a ditch by the side of the road.

The US dollar, gold, and stock market crashes

Now, back in 1929 the US Dollar Index was not yet in existence. Even more, at the onset of the Great Depression the US dollar was backed by gold. This changed in 1933 when the US government suspended the gold standard, restricted use of gold for transactions, and banned most private ownership of gold. Yet even in the midst of the Gold Reserve Act in January 1934 (over four years after 1929 Crash), the CPI pretty much remained unchanged for some time. A few possible reasons for this include slack demand and an unemployment rate of 21.7% (a substantial climb from a 4.2% unemployment rate in 1928 and 8.7% in 1930). Though the value and meaning of the unemployment rate today may have substantially changed since 1930, the psychological impact and market implications of the numbers remain.

Although it may be easy to compare the Crash of 1929 with the Crash of 2008, when taking into account various factors like oil, the US dollar as a global reserve currency, globalization, societal changes, and increasing technology, one cannot help but feel that comparing the two crashes is a bit like comparing apples and oranges. On October 28, 1929, the Dow Jones Industrial Average (DJIA) dropped 12.82%; the next day the DJIA dropped 11.73%. In comparison, the next closest one-day percentage loss from October 2008 was 7.87%. Where the 1929 US economy appeared to fall and not be able to get back up, the US economy today appears to have fallen, is currently struggling to get back up on its feet.

The Crash of 2008 spurred investors to take another look at precious metals. A practical standard in comparing the value of the US dollar after the Great Depression and the value of the US dollar after the Crash of 2008 rests in gold. In the 1930s, the price of gold was relatively stable.

If we contrast the 1930s with the Crash of 2008 where gold went through the roof, it is clear that the US dollar on the gold standard was a completely different animal in comparison to the fiat free-floating US dollar currency we have today. Both currencies in 1929 and 2008 were the US dollar, but in an analogous way it is as if one was a Saber-toothed tiger and the other is a Bengal tiger; they are two completely different animals. Where we have experienced inflation since the Crash of 2008, the situation was much different in the 1930s when deflation set in. Unlike the deflation of the early 1930s, the US economy currently appears to be in a "liquidity trap," or a situation where monetary policy is unable to stimulate an economy back to health.

In terms of the stock market, nearly three years after the 1929 crash, the DJIA dropped 8.4% on August 12, 1932. Where we have experienced great volatility with large intraday swings in the past two months, in 2011 we have not experienced any record-shattering daily percentage drops to the tune of the 1930s. Where many of us may have that '30s feeling, in light of the DJIA, the CPI, and the national unemployment rate, we are simply not living in the '30s. Some individuals may feel as if we are living in a depression, but for many others the current global financial crisis simply does not feel like a depression akin to the 1930s.

The value of a dollar and the rebound

What really is the value of a dollar? If we take a look at the CPI of the 1930s, we see that in October 1929 the CPI was 17.3 and in October 1932 the CPI was 13.3. At first, this would appear to show that deflation had set in, the dollar had increased in value, and that prices had fallen. However, one must also take into account the rising unemployment of the 1930s. To use an analogy, let us imagine a country called Acadia with 5% unemployment where a loaf of bread sells for 5 francs. Now, imagine that unemployment in Acadia doubles to a rate of 20% but a loaf of bread still sells for 5 francs. Though the price of a loaf of bread has not changed, the value of a loaf of bread has changed whereas the labor market value of work necessary to secure a loaf of bread has increased owing to increasing unemployment. Given the poor labor market, the worker is effectively having to work harder and longer to sustain his position in the labor market while still having francs to buy bread. Where a worker was once able to work in order to gain funds necessary to purchase food, perhaps now he would have to go without.

From the perspective of a laborer competing in the labor market, the value of a franc with 20% unemployment is considerably higher than the value of a franc with 5% unemployment. This type of interplay between consumer goods and the unemployment rate in a free market would appear to suggest that as a society or a labor force gets leaner its market for goods should get leaner as well.

If we compare the CPI in October 2008 (216.573) to August 2011 (226.545), fortunately we appear to be out of the range of the financial troubles of the 1930s. However, the situation on the planet today is much different than it was back in the '30s. To put the difference into perspective, the world population in 1930 was about two billion people; today it's about seven billion people. Today we have the Eurozone, globalization, and financial upheaval on a planetary scale the likes of which the world has never seen.

Even so, the problem with the Crash of 2008 is that it is disproportionately affecting various groups and regions in the country more so than others. As such, in the midst of a financial depression we can still see the booming shopping mall in Columbus, Ohio, but perhaps we are missing the tent city in Reno, Nev. In this way, it may be easy for Americans to overlook the country's financial health given everyday economic activities. It makes sense that an individual would form his perspective on the economy based in large part on the world around him.

Thus, it becomes difficult to believe that the country is in a depression when you drive past restaurants like Carrabba's Italian Grill or Red Lobster and see that they are packed to the gills. I believe that this outlook is the difference of an economic recession with deflation and through-the-roof unemployment and an economic recession with continued inflation.

Face-to-face with an economic depression

I can recall asking my friend after the stock market crash in 2008, "Okay, so we're entering a depression. At what point do we start selling apples on the street when there is no food in the grocery stores?" To say the least, our current plight does not appear to be the same as what occurred in the 1930s. The difference in perspective though goes back to changes in culture and the American way of life. The country may be in a depression, but alas, cars still travel the highways, people continue to go to expensive restaurants, iPhones still sell, and life goes on. Of course, there may be areas with massive tent cities or recurring rolling blackouts in the US, but I have never seen them or experienced them from my limited perspective and it would appear that not too many news agencies are reporting on such phenomena (or at the very least I have failed to notice such phenomena).

Three years after the Crash of 2008, I fortunately have yet to see masses of people standing in a bread line or waiting for food at a soup kitchen. Where we may not see individuals selling apples on the street or grocery stores with empty shelves, I know at least in the Midwestern U.S., we see a vast number of empty shopping plazas, empty shopping malls and empty homes.
We see people holding signs on the street corners begging for money or work. These become the faces of the current economic crisis. The current global financial crisis has not affected all Americans equally. Though some may have suffered greatly in the past three years, others have not suffered quite as much. Nonetheless, things for the US economy could change fast and in the near future. At the very least, as long as we continue being able to secure our daily bread, the U.S. economy should rebound eventually. When all is said and done, this too shall pass.
Tags: Benzinga
Oct 6, 2011 8:47PM
In the 1930s, new oil discoveries were rising; today they are declining. In 2011, we are more dependent than ever on oil to power our machines and our economy. Renewable fuel sources are less energy dense, and therefore inferior at producing useful work than fossil fuels. Because of this, we are witnessing the end of economic growth in terms of GDP. The world economy is in a more precarious position than in the 1930s.  
Oct 6, 2011 9:20PM

Also, has anybody noticed how nobody is hungry?  Just about everybody, including the unemployed, are either obese or extremely overweight.  I remember the pictures of people from the Depression...they were thin.  Even when WW2 started they had to turn away over ten percent of the recruits for malnourishment.   People were literally starving for a meal back then.  Nowadays, it would take months of not eating for a typical American to look hungry.  So yes, today is definitely not as bad as then.

Three years after the Crash of 2008, I fortunately have yet to see masses of people standing in a bread line or waiting for food at a soup kitchen. Where we may not see individuals selling apples on the street or grocery stores with empty shelves, I know at least in the Midwestern U.S., we see a vast number of empty shopping plazas, empty shopping malls and empty homes.
What do you call 46,000,000 Americans on food stamps???

Oct 7, 2011 11:00AM
@Jim Hawkins:  I take it you're going back to Britain?  Good luck with that.  Their economy is in even worse shape than the USA, and stands to slide further as Europe in general falls into a serious recession brought on by the troubles brewing in Greece, Italy, Spain, etc.

So yeah, have fun, Jim. Open-mouthed

Oct 7, 2011 1:28PM
No way is this economy as bad as 1979. I live in the same small town. I grad. from HS in 1979. I know how few jobs there were then.  A month ago I'm getting my van serviced in the middle of the week in the middle of the day. A small grocery store is just across the street. I see all these beach bums coming and going (there is a beach nearby). They all seemed to have a smart phone in one hand  with a beer in the other, a cig hanging out their mouth, and covered in tattoos. And they were fat. I remember beer and cigs in 1979. Not the smart phones or tattoos or obesity. So here were I am people seem to be doing better economically than in 1979.
Oct 7, 2011 9:32AM

According to my 100  year old mother, many things were different in the 1930's. No unemployment pay, no welfare checks, no Medicaid.  Families were much larger (no birth control, no Planned Parenthood). Only the man of the house worked, so when he was out of work, there was no second income. There wasn't any FDIC and no Fed Reserve. All banks were closed and people lost their life savings. There were also record setting heat waves and drought (ever heard of the dust bowl?) which decimated farmers. 


Oct 7, 2011 10:09AM

The one thing no one mentions is the unemployment payments people get now. They didn't get that in the 30's

Take those payments away and see what happens. It would be very similar to the 30". Wake up, we cannot keep paying the unemployment payments forever, then what?

Oct 7, 2011 4:52AM
Still, I'm not sure this recession equaled the recession of '82.  Unemployment peaked at about the same, but then we had about a 14% inflation rate and a 20% plus prime interest rate. We've yet to see that this time. What's worse, not being able to afford mortgage interest rates in the first place or not being able to make the house payment? The end result is you have no house in either scenario. I would hope that most people should know that in attempting to pay for the jobs bill----home mortgage interest deductions will be eliminated along with charitable contributions and state tax deductions. Those are three items that affect far more than the rich. Would you give up all 3 of those for a 5% easy to get around tax on the rich. Really, who can better afford it?? NO, NO, the middle class will pay far more in return for what they want???
Oct 7, 2011 12:00PM
I did a little research and was here for the '82 recession and then some. If you check historical unemployment rates, you will note that it was 7.2 or so when Reagan took office. The '82 recession hit and at the end of his first term it was 7.4 or so,  I'd have to check inflation and interest rates, but point of fact is that he handled the unemployment in 1 4 year term. Call it Reaganomics, supply side economics, voo doo economics, whatever? It worked at that time and did exactly what it was supposed to do. Is it the answer to it all? Admittedly, Reagan was big on defense and spent  a lot on it, but a lot of folks credit him for winning the Cold war and breaking the economic back of Russia. The depression was bad, real bad. Is this the worse since then??? I say not, but I may be a minority of one.
Oct 7, 2011 10:28AM
Is it because they didn't increase the money supply?

To start with, the Fed made money very cheap in the 1920s, which created the bubble that eventually popped. It made things worse by adopting a tight monetary policy as the situation worsened. It raised rates and didn't provide bailouts for the banks. That caused a huge deflationary impact that can only be stifled by increasing the money supply.


Of course, those running the Fed were hoping to bankrupt a rising middle class. The actions had the opposite impact. Everyone lost (including the rich). And the income gap narrowed over the next 40 years.

Oct 6, 2011 5:52PM
Has anyone posted a comparison like this before? Awesome to put things into perspective... times seem bad, but at least it's not 1932. Although we have started to see these crazy 3-6% swings in the indices... it doesn't exactly make your stomach easy.
Oct 7, 2011 10:10AM

Mirage guy II,


Do a little deeper research and you will find that unemployment was over 20% (some estimates at 25%) at the end of 1932, and getting worse.  After stimulus in 1933, the unemployment rate dropped below 15%.  It never again got as high as the pre-stimulus rate.


Also, when we did our biggest stimulus - in 1942 - the unemployment rate dropped to about 2%.

Oct 7, 2011 10:46AM
What about the 3 to 4 depressions in the 1800's? Who's fault were they? No Fed around back then to blame.
Oct 7, 2011 10:15AM

Mirage guy,


Please explain how the federal reserve contributed to the length of the depression.  Is it because they didn't increase the money supply?

Oct 7, 2011 1:14AM
My bad, that was just my first inclination. ACTUALLY... the average "salary"/wage in 1970 was $6186(so more than 3 times what you listed). Your number for 2009 is spot on, so I have to wonder where you got the number for 1970. Here's where I got my data.
Oct 7, 2011 10:25AM
The Federal Reserve was established in 1919. 

It was 1913.

Keynesian economics made the depression drag on for a decade.  That prescription is likely to the same today.  Those that do not learn from history are doomed to repeat it...



What was WWII? Except massive Keynesian spending? That's all it was. The government took out massive loans by issuing bonds, borrowing, etc and spent it. The economy expanded more quickly, unemployment came down, and the depression was over.


Really. I see the complaints today about debt spending. WWII blows anything today away, debt (not we owe 50 years from now debt, but current debt) was 150% of GDP.


It wasn't "austerity" that ended the depression. Quite the opposite. After 3 years of economic expansion from 1933-1936, the government resumed balancing it's budget (and yanked money out of the economy in the process), which caused the recession in 1937.




Major problem Today is during the economic expansion from 2002-2007, the budget wasn't tamed. It grew faster than tax revenues. Also had the start of major wars. With no tax increase to pay it but instead a tax cut. That's never even happened in our history before. Every war that's ever been fought the government increased taxes to pay for those.


The bad situation is, you cut spending, you cut support in the economy now. It won't be replaced by anything, because taxes aren't going down. From here, on average, Americans are all paying the lowest taxes in 60 years. A big problem with that is, 84% of the income is in the group whose tax rates have dropped the most. All while trying to fund wars and making a larger budget for basically the last 30 years, ex the 90s when it decreased relative to GDP.

Oct 7, 2011 11:33AM
The USA is retooling and will be back and better than ever. No doubt.
Oct 7, 2011 9:52AM



Your mother was incorrect.  The Federal Reserve was established in 1919.  It contributed a lot to the length and depth of the Depression.   Not all banks closed (besides the 3 day bank holiday), but many did, and the depositors lost their life savings. 


Keynesian economics made the depression drag on for a decade.  That prescription is likely to the same today.  Those that do not learn from history are doomed to repeat it...

Oct 7, 2011 8:04PM



No I'm not moving back to England, I'm actually moving to a small island in the Caribbean to teach kids to read and write.


I will as I have done for the last 30 plus years trade the markets to supplement my income.


Good luck with your future in the USA



Oct 7, 2011 11:07AM
zero sum game should know that North American Oil production will be at all time highs in the next couple years.  There are major oil and gas discoveries all over the world. 
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