The Decade the Money Stopped
The Great Depression was a severe global economic downturn running from 1929 to 1939. It brought high unemployment and poverty, drastic cuts in industrial production and international trade, and bank and business failures across the world.
The contagion began in 1929 in the United States, then the largest economy on Earth. The devastating Wall Street crash of that year is often treated as the starting gun. Among the countries with the most unemployed were the United States, the United Kingdom and Germany.
What makes it so studied is not just its depth but its reach. Rich countries and poor ones alike saw personal incomes, prices, tax revenues and profits collapse together, and nobody could borrow their way out because everybody was shrinking at once.
The Party Before the Crash
The Depression followed a boom. The Roaring Twenties brought industrial growth and social change, but much of the profit went into speculation, especially in the stock market, which widened wealth inequality.
Banks faced minimal regulation, which produced loose lending and widespread debt. By 1929, falling spending had already cut manufacturing output and pushed unemployment up, even as share prices kept climbing.
Then the market turned. The Dow Jones Industrial Average fell from 381 to 198 in two months. Optimism held on for a while, and the index actually recovered to 294 by April 1930, which is why many people believed the worst was over. It was not. The slide continued for years, reaching a low of 41 in 1932, and confidence in the whole financial system went with it.
1933, the Bottom
By 1933 the numbers in the United States were catastrophic. Unemployment had reached 25%. About one third of farmers had lost their land. Of the country's 25,000 banks, 9,000 had gone out of business.
President Herbert Hoover was unwilling to intervene heavily in the economy. In 1930 he signed the Smoot-Hawley Tariff Act, which inadvertently made the Depression worse by choking trade further.
In the 1932 presidential election Hoover was defeated by Franklin D. Roosevelt, who from 1933 pursued the New Deal, a set of expansive programmes intended to provide relief and create jobs. Meanwhile a severe drought had begun ravaging the American agricultural heartland, hitting farming communities that were already on the floor.
A Wound the Whole World Felt
Between 1929 and 1932, worldwide gross domestic product fell by an estimated 15%. In the United States the contraction reached 30%. International trade fell by more than half, and unemployment in some countries climbed as high as 33%.
The pain concentrated in particular places. Cities dependent on heavy industry suffered badly, construction virtually halted in many countries, and crop prices fell by up to 60%, devastating rural areas and regions that depended on primary sector industries.
Germany, which relied heavily on American loans, saw unemployment rise to nearly 30%, and the crisis fuelled political extremism that paved the way for the Nazi Party to take power in 1933. Recovery varied: the United States, Germany and Japan began recovering by the mid-1930s, while France did not return to its earlier growth rates until later in the decade. The outbreak of World War II in 1939 is what finally ended it, by driving factory production and pulling women into the workforce.
Economists Still Argue About Why
The precise causes of the Great Depression remain disputed, which is remarkable for an event this large and this well documented.
One group of historians focuses on non-monetary economic causes. Within that group, some treat the Wall Street crash itself as the main cause, while others see the crash as merely a symptom of broader economic trends already under way in the late 1920s.
A contrasting view, which rose to prominence later in the 20th century, puts the blame on failures of monetary policy. These authors accept that general economic trends can explain why the downturn started, but argue they cannot explain its severity or its length. For that, they point to the inadequate response to the liquidity crises that followed the shock of 1929, and to the bank failures and collapse of financial markets that came after.
