Avoiding a Depression

July 18, 2004 10:13 PM

I've been reading a lot lately about the Great Depression. What I'm curious about is, did anyone make money during the great depression? Are there certain industries that prosper during a depression? If you knew a great depression was about to happen, what would you do to put yourself in the best possible position? Invest in gold maybe? What else?

A related question: If paper money becomes worthless during a depression, why were things being sold so cheap? It seems like things would have to be more expensive.

posted by banished to Work & Money (12 answers total)

I'm part of a business that has taken advantage of the recent recession to hire workers at a price and in a manner that I'm pretty sure would have been difficult if not impossible during the dot-com boom.

Of course, during said boom, they probably could have charged higher prices for services and gotten lots of business. But I think that while funding for startups is tighter during lean times, it's worth noting that some resources (labor, office space) are cheaper. Whether or not you want to be the Man is another question, of course.

As for the cheapness of goods... I don't know. Maybe once buying power becomes weakened at large, you have to drop the price of goods in order to sell anything.
posted by weston at 10:44 PM on July 18, 2004

If you're interested in reading about the actual crash, these About.com articles make good quick reading.

If paper money becomes worthless during a depression

That's a big 'if'. Paper money didn't become worthless in the Great Depression.

What I'm curious about is, did anyone make money during the great depression?

Depends on how you're asking the question. Are you asking whether anyone took advantage of the depression to make more money than they would have normally? Most probably. If you're asking if anyone made any money at all, then certainly.

A depression is not the entire collapse that history makes it seem. It's simply a large drop in the efficiency of the financial system. The depression was not caused by a crash in productivity, resources, or raw wealth.

Check out this really indepth article about the Great Depression for all the answers.
posted by wackybrit at 1:18 AM on July 19, 2004

Actually, your second question Are there certain industries that prosper during a depression? answered one of mine, so excuse me for that ;-)
posted by wackybrit at 1:19 AM on July 19, 2004

I remember reading that the authors of pulp novels (Doc Savage, The Shadow etc etc) all still managed to pull in the big bucks despite the depression.
posted by PenDevil at 1:35 AM on July 19, 2004

Random thoughts.

Astute stock investors cleaned up bigtime in the 10 years after the '29 crash. Stocks fell from vastly inflated prices to well below their intrinsic value and there were bargains aplenty. So one rule is: be liquid (have cash on hand), and be ready.

What would you do with gold? Who will you sell it to?

As noted above, money didn't lose its value. You may be thinking of the German great inflation, which followed on after the crash of 29, but wasn't a feature of the Great Depression elsewhere.

Supposedly cheap luxuries are depression-proof. Confectionary, alcohol, movies, tobacco.

If I had advance knowledge I would be cashed up, be ready to buy property where I could grow food on my own land, and have a big fund waiting to invest come the recovery.
posted by i_am_joe's_spleen at 2:00 AM on July 19, 2004

I think the expression "being on easy street" grew out of the fact that people with secure positions and pay suddenly found that their money went a lot further while the world crumbled around them.
posted by Space Coyote at 3:50 AM on July 19, 2004

As a single, probably isolated example, my grandmother's family did quite well during the depression. They were subsistence farmers so they weren't really effected by the market crash and because she had many brothers who were getting to be of working age they were able to increase production and sell vegetables in town (for very little probably, but more cash flow than a strictly subsistence farm nets).
posted by jmgorman at 5:25 AM on July 19, 2004

The classic example of an industry that prospered during the 1930s was Hollywood. People flocked to the cinema to escape their daily woes.
posted by Fupped Duck at 5:33 AM on July 19, 2004

Land. It is the root of wealth. During a depression, people will sell property for far less than it is "worth" (in quotes because worth can be a somewhat relative term). At the same time, people without much money will be renting more because they can't afford property. With a (relatively) small investment of, say, a couple of million dollars, you can have a bunch of poor schlubs paying your mortgage for you.
posted by Civil_Disobedient at 5:34 AM on July 19, 2004

The Texas oil industry also did rather well during the Depression, as the gasoline and oil had already become essential to the fuctional efficiency of American business, and to a lesser degree, American daily life. The nation couldn't just stop using gas-powered and oil-lubricated devices and go back to horses and wagons.
posted by Mo Nickels at 7:48 AM on July 19, 2004

There is a mutual fund called the Vice Fund that invests solely in so-called 'sin stocks' because they are supposedly recession-proof.

When times are bad, the thinking goes, people drink, smoke and gamble; businesses in these industries will continue to prosper while others founder.

When times are good, on the other hand people drink, smoke, and gamble even more!
posted by ChasFile at 10:57 AM on July 19, 2004

Also, the value of paper money is tied to peoples' faith in the government's ability to repay its debts. During the depression, however, it wasn't the government that couldn't repay its debts, it was banks and financial institutions. Had the FDIC existed back then, things may have been very different. In any event, inflation wasn't really the issue; over-extended speculators were.

Also, goods could be had cheap simply because of supply and demand. There was an excess of production, a dearth of consumption. Nobody was buying anything; as inventories piled up, managers slashed prices in an attempt to move merchandise.
posted by ChasFile at 11:03 AM on July 19, 2004