Great Depression
The Great Depression was a severe worldwide economic crisis that lasted from 1929 to the late 1930s. It was the longest and most widespread depression of the 20th century and had devastating effects across the globe.
1. Stock Market Crash of 1929
- The most immediate trigger.
- Speculation had driven stock prices far above actual value (a “bubble”).
- On October 29, 1929 (Black Tuesday), the stock market collapsed.
- Investors lost confidence, sold off stocks in panic, and billions of dollars in wealth vanished.
2. Bank Failures
- Thousands of banks failed in the early 1930s.
- People panicked and withdrew their money (bank runs).
- Without deposit insurance, many lost their life savings.
- Less money available = less spending = deeper recession.
3. Overproduction & Underconsumption
- Factories and farms produced more than people could buy.
- Wages didn’t keep up with productivity—workers couldn’t afford the goods they made.
- Led to layoffs, which reduced consumer spending even more.
4. Global Trade Collapse
- The U.S. passed the Smoot-Hawley Tariff Act (1930), raising tariffs on imports.
- Other countries retaliated with their own tariffs.
- World trade fell sharply, hurting export economies and making the depression global.
5. Unequal Distribution of Wealth
- A small percentage of people held most of the wealth.
- The majority couldn’t afford to keep the economy growing through spending.
- This made the economy fragile and easily destabilized.
6. Government & Federal Reserve Mistakes
- The Federal Reserve failed to provide enough support (tightened the money supply instead of loosening it).
- Deflation set in—prices dropped, making debts harder to pay.
- Governments initially followed "hands-off" economic policies, delaying recovery.
7. The Dust Bowl (U.S. Specific)
- Severe drought and poor farming practices in the Great Plains created massive dust storms.
- Thousands of farmers lost their land and livelihoods, worsening rural poverty and migration.
Summary Table:
| Cause | Impact |
|---|---|
| Stock Market Crash | Triggered financial panic |
| Bank Failures | Destroyed savings, reduced lending |
| Overproduction | Led to layoffs and falling demand |
| Global Trade Collapse | Hurt international economies |
| Wealth Inequality | Weakened consumer spending |
| Federal Reserve Policy Mistakes | Made recession worse (tightened money supply) |
| Dust Bowl | Worsened rural economic conditions |
Consequences
- Massive Unemployment – At its peak, U.S. unemployment hit 25%.
- Widespread Poverty – Homelessness, soup kitchens, and shantytowns ("Hoovervilles").
- Political Unrest – Rise of extremist movements in some countries (e.g., Nazism in Germany).
- Global Economic Decline – International trade dropped by over 50%.
- Social Changes – Shift in public expectations of government responsibility.
Response & Recovery
- In the U.S., President Franklin D. Roosevelt (FDR) launched the New Deal, a series of programs to provide relief, recovery, and reform (e.g., Social Security, jobs programs).
- Other countries used various combinations of government intervention, currency devaluation, and social programs.
Global Impact
- In Europe: Mass unemployment and instability.
- In Latin America & Asia: Export-driven economies collapsed.
- In Germany: Economic despair helped the Nazi Party rise to power.