The Great Depression 1929-1939 was the greatest economic crisis in the history of the industrialized world. It started after the 1929 stock market crash, which affected Wall Street and caused the loss of millions of investors.
Consumer spending and investment fell during the following years, which led to sharp drops in industrial production and employment as failing businesses, laid-off workers. When the Great Depression peaked in 1933, there were 15 million unemployed Americans, and almost half the country’s banks had collapsed.
Causes of The Great Depression
The United States’ economy increased throughout the 1920s, and from 1920-1929 – a time period known as “ The Roaring Twenties” – the country’s overall wealth more than doubled.
Everyone from billionaire businessmen to cooks and janitors invested their funds in stocks on the stock market, which was concentrated at the New York Stock Exchange on Wall Street – New York. As a result, the stock market expanded quickly and peaked in August 1929.
At that point, unemployment increased, and production decreased, driving up stock values much over their true worth. Additionally, the agricultural sector of the economy was failing to owe to the drought and declining food prices, low salaries, the expansion of consumer debt, and banks’ surplus of huge loans that couldn’t be repaid.
During the summer of 1929, when consumer spending dropped and unsold products accumulated, industrial production also slowed, and the American economy experienced a slight recession. However, stock prices kept rising, reaching stratospheric heights by the fall of that year, which was incomprehensible given projected future earnings.
Stock Market Crash – 1929
The stock market crash that some had anticipated finally happened on October 24, 1929, when worried investors sold significant amounts of overpriced stocks. On ‘Black Thursday,’ a record 12.9 million shares were exchanged.
Five days later, on October 29, known as ‘Black Tuesday,’ 16 million shares were exchanged when yet another panic hit Wall Street. Millions of shares became worthless, entirely wiping out the investors who had purchased stocks “on margin” (with borrowed funds). Following the stock market crash, consumer confidence fell, resulting in a decrease in spending and investment, which caused factories and other firms to loosen output and lay off employees. For those fortunate enough to keep their jobs, incomes dropped, and their purchasing power shrank.
Many Americans accumulated debt when obliged to purchase items on credit, and the number of foreclosures and confiscated properties increased significantly. The global adoption of the gold standard, which brought countries from all over the world together to trade fixed currencies, contributed to the spread of economic problems from the US around the world, particularly in Europe.
President Hoover’s Response
President Herbert Hoover and other authorities gave promises that the crisis would pass, but during the following three years, things only became worse. There were 6 million unemployed Americans by 1931, up from the 4 million unemployed in 1930.
The country’s industrial production has decreased by 50% in the meantime. In America’s towns and cities, you could find more homeless people, soup kitchens, and bread lineups. Farmers were pressured to leave their crops in the fields to waste because they couldn’t afford to harvest them, causing other people to starve. In 1930, the Southern Plains’ severe droughts caused heavy winds and dust to blow from Texas to Nebraska, killing crops, livestock, and people.
In search of employment, many people moved from rural areas to cities due to the “Dust Bowl.”
The first of four waves of banking crises started in the fall of 1930 when many investors lost faith in their banks’ ability to remain viable and demanded cash deposits instead. As a result, banks were forced to liquidate loans to make up for the shortfall in their cash reserves. During the spring and fall of 1931 and 1932, there were new bank runs across the country, and by early 1933, hundreds of banks had closed.
The New Deal
When he was elected as president in 1933, Franklin D. Roosevelt made a promise for change. He started the New Deal, a ground-breaking package of domestic initiatives meant to support American industry, lower unemployment, and safeguard the population.
It was founded on the idea that the government could and should have stimulated the economy, loosely based on Keynesian economics. The New Deal had high standards for full employment, decent salaries, and building and maintaining the country’s infrastructure. The government implemented price, wage, and production restrictions to achieve these objectives.
Some economists contend that Roosevelt expanded on many of Hoover’s actions. He maintained a strict focus on price supports and minimum salaries, got the country off the gold standard, and outlawed holding gold bars and coins. He outlawed monopolistic corporate practices and established several new public works initiatives and organizations that foster employment growth.
The Roosevelt government compensated farmers and ranchers by halting or reducing production. The destruction of surplus crops during this time was one of the most tragic paradoxes since multitudes of Americans needed access to affordable food.
Between 1933 and 1940, federal taxes tripled to fund these projects and brand-new programs like Social Security. Excise taxes, personal income taxes, inheritance, corporate income, and excess profit were among the taxes that saw rises during this period.
World War II
From 1941 to 1942, the Great Depression seemed to end unexpectedly. That is if we consider GDP and unemployment statistics. Roughly at this time, the United States joined World War II. The unemployment rate decreased from eight million unemployed in 1940 to slightly over one million in 1943. However, more than 16 million Americans were recruited to serve in the military. Real unemployment rates increased in the private sector during the war.
Due to rationing-induced shortages during the war, the standard of life fell, and taxes skyrocketed to pay for the war effort. Private investments decreased from $17.9 billion in 1940 to $5.7 billion in 1943, while the overall production in the private sector decreased by about 50%.
Although it is a shattered window fallacy to claim that the war ended the Great Depression, the war did start the American economy on the path to recovery. The conflict destroyed pricing and wage regulations and opened up international trade routes. Government demand for low-cost goods increased, and the resulting demand led to a significant fiscal boost.
Private investments increased from $10.6 billion to $30.6 billion in the first year following the war’s end. Within a short period of time, the stock market entered a bull market.
Takeaways
- The Great Depression 1929-1939 was the greatest economic crisis in the history of the industrialized world.
- From 1920-1929 the country’s overall wealth more than doubled.
- The stock market crash happened on October 24, 1929.
- On ‘Black Thursday,’ a record 12.9 million shares were exchanged.
- There were 6 million unemployed Americans by 1931, up from the 4 million who were unemployed in 1930.
- World War II did start the American economy on the path to recovery.
