Depression

Depression is a deep, extended slump in total busi­ness activity. Buying and selling drop during a depres­sion, causing a decline in production, prices, income, and employment. Money becomes scarce. Many busi­nesses fail, and many workers lose their jobs. A depres­sion can hit an industry, a region, a nation, or the world.

A depression might develop if sales drop in a number of stores. Because of the fall in sales, the stores order less merchandise from manufacturers. The manufactur­ers, in turn, lower production, cut orders from suppli­ers, and invest less money in new equipment and facto­ries. As sales drop, prices tend to fall, further reducing business income. Employers lay off workers as business income falls. Bankruptcies may follow.

The depression cycle occurs again and again as un­employment rises. Unemployed workers have less money to spend, leading to further drops in sales, pro­duction, income, and employment. The slump feeds on itself, becoming progressively worse until business ac­tivity picks up.

Not all business slumps grow into depressions. A milder slowdown in business activity is called a reces­sion. Some depressions last several years, but most re­cessions last only a year or less. In most of the world's industrial nations, depressions and recessions alternate with business expansions. This alternation is called the business cycle.

Financial panics at the start of depressions sharply re­duce the amount of money available for spending. This may have effects throughout the world, not just within a nation itself. The stock exchange collapse in Britain in 1891 affected investors' confidence in Australia. Many creditors called in their loans. Between 1891 and 1892, a large number of land and finance companies failed be­cause they had extended too much credit. Some small banks also failed. A run on the banks developed as peo­ple tried to withdraw their money. Panic spread when the Commercial Bank of Australia in Melbourne closed its doors in April 1893. Further bank crashes followed and there was a severe depression in the 189ffs in Aus­tralia. The situation was made worse by large-scale strikes in the early 1890's and widespread drought in the late 1890's. Depressions have also occurred after wars, when wartime spending suddenly stops. The worst de­pression in history was the Great Depression, which struck the world in 1929 and continued through the 1930's. See Great Depression.

Effects

Effects on individuals. Depressions hurt great num­bers of people, especially workers who lose their jobs. Bank failures wipe out the savings of depositors if such funds are not insured. Many people cannot meet rent or mortgage payments and lose their homes.

During a depression, some people must live on un­employment benefit or charity to survive. They may feel angry and humiliated because they cannot support themselves.

Depressions cause marriage and birth rates to de­cline. Young people who cannot find jobs delay mar­riage. Couples uncertain about the future may have fewer children than they would like.

Long periods of unemployment cause people to lose faith in themselves and in the future. After a depression, many people value security more than anything else.

Some people profit from a depression. For example, those who have enough money can buy businesses and other property at low prices. Salaried workers may live better as prices drop and their income buys more.

Effects on society. Society suffers as a depression spreads mass unemployment, poverty, and despair. De­pressions also change certain beliefs. These changes can affect society. The Great Depression caused many people to distrust business and led the government to regulate business and economic affairs. This increased regulation led to the widespread belief that the govern­ment should maintain high employment and guarantee citizens a good life. After the Great Depression, many people no longer trusted employers to protect workers. As a result, trade unions gained more members and greater public acceptance than ever before.

A depression makes some people lose faith in their system of government. They may come to believe any leader who promises a change. Leaders who took power during a depression include Adolf Hitler, who ruled Germany as dictator from 1933 to 1945, and Benito Mussolini, dictator of Italy from 1922 to 1943.

Relations between nations suffer during a depression. Each country tries to protect its own interests without concern for other nations.

Causes and prevention

Economists disagree on what causes depressions and how they can be prevented. Some economists believe that psychological factors, such as people's optimism or pessimism, determine decisions to save or spend.

Several theories maintain that population changes or inventions cause periods of expansion and contraction (depression or (recession). When immigration or higher birth rates cause a population to grow, demand tends to increase. When population growth slows down, demand drops. Such inventions as the car and colour television spur business investment and consumer spending, causing expansion. After demand for these products has been satisfied, spending drops off, resulting in contraction.

Sill other theories suggest that during an expansion, businesses invest too heavily in buying equipment and constructing plants and offices. Then, for some time, they have no need to buy or build, and a contraction results.

Most experts believe that another severe depression can be prevented in various ways. Social security and employment benefit guarantee that people will have some money to spend. In addition, economists can predict swings in the economy, enabling the government to take  preventive action.

A government's chief methods of preventing a depression are by its fiscal policy and its monetary policy.  Fiscal policy refers to a government's taxing and spending programmes. Monetary policy refers to how a government manages the nation's money supply  that is, the total quantity of money in the country, including 3sh and bank deposits. Most economists stress either fiscal policy or monetary policy as the best means of presenting a depression.

Fiscal policy. John Maynard Keynes, a British economist who published his theories during the 1930's, explained a depression as the result of a drop in effective  demand — that is, total spending by consumers, busi­ness, and government. He believed that increased savings slow the rate of economic growth. According to Keynes, people's decisions to save or spend depend on what they expect the economy to do. If they expect bad times ahead, they may decide to save their money. Similarly, if businesses do not foresee future sales, they will not invest money in new products or equipment.

According to Keynes, a government can prevent de­pressions by encouraging spending. Tax cuts, for exam­ple, give people more money to spend. A government can increase its own spending in such activities as pub­lic works and aid to the poor. In addition, Keynes be­lieved that lower interest rates encourage people and businesses to borrow money, which they will either spend or invest.

Monetary policy. Milton Friedman, an American economist, became the main spokesman of a group of economists called monetarists. He received the Nobel Prize in 1976 for his research in economics.

Monetarists stress the role of monetary policy and a nation's central bank in preventing depressions. They point out that the Federal Reserve System in the United States deepened the Great Depression by allowing the money supply to shrink in the 1930's. The Federal Re­serve System is a United States government agency that controls the nation's money supply.

According to monetarists, severe swings in a nation's economy could be prevented if its central bank in­creased the money supply at a steady rate. They recom­mend a rate of 3 to 5 per cent, the approximate rate at which production increases. Monetarists oppose

Keynesian proposals to use government spending and taxation to control the economy.

Related articles: Business cycle, Unemployment, Great Depression, History of the United States, John Maynard Keynes, (The Great Depression), and Recession

Depression is a serious mental disorder in which a person suffers long periods of sadness and other nega­tive feelings. The term depression also describes a nor­mal mood involving the sadness, grief, disappointment, or loneliness that everyone experiences at times. This article discusses depression as a mental disorder.

Depressed people may feel fearful, guilty, or helpless. They often cry, and many lose interest in work and so­cial life. Many cases of depression also involve aches, fa­tigue, loss of appetite, or other physical symptoms.

Some depressed patients try to harm or kill themselves. Periods of depression may occur alone, or alternate with periods of mania (extreme joy and overactivity) in a disorder called manic depressive psychosis.

Psychiatrists do not fully understand the causes of de­pression, but they have several theories. Some psychia­trists believe that depression follows the loss of a rela­tive, a friend, a job, or a valued goal. Many psychiatrists believe that experiences that occur during early child­hood may make some people especially subject to de­pression later in life.

According to another theory, disturbances in the chemistry of the brain occur during depression. Brain cells communicate with one another by releasing chem­icals called neurotransmitters. Some experts think that certain neurotransmitters become underactive during depression and overactive during mania. These changes in brain chemistry may be related to disturbances in the body's internal rhythms.

Treatments for depression include hospitalization, psychotherapy, chemotherapy (drugs), and electrocon-vulsive therapy (ECT). Hospitalization is an essential treatment for depressed patients who are suicidal. In psychotherapy, the psychiatrist tries to understand (1) the childhood events that make a person subject to de­pression and (2) the events that preceded the patient's current depression. Drugs called tricyclic antidepres­sants help more than two-thirds of all severely de­pressed patients. Lithium carbonate is a drug used in treating manic-depressive people. Electroconvulsive therapy is generally used only for patients who fail to re­spond to other treatment. See also Mental illness (Affective disorders).