THE GREAT DEPRESSION

Introduction

The Great Depression was the most prolonged and severe economic downturn in the history of the United States and the modern industrial economy, spanning over a decade from August 1929 to 1941, the same year the United States entered World War II.

This economic crisis triggered the Wall Street Stock Market crash. The Wall Street Stock Market, now referred to as the New York Stock Exchange, is an American stock exchange located in the Financial District of Lower Manhattan in New York City. It is the world's largest stock exchange by market capitalization. The crash led to widespread business failures and a significant rise in unemployment.

Economists and historians frequently regard the Great Depression as the most consequential, if not the most devastating, economic event of the 20th century.

Causes of the Great Depression

Identifying the exact causes of the Great Depression is challenging, but economists and historians generally concur that multiple factors contributed to this economic downturn. These factors include the stock market crash of 1929, the gold standard, a decline in lending, tariffs, banking panics, and the Federal Reserve's restrictive monetary policies.

1. Stock Market Crash of 1929: The abrupt collapse of stock prices wiped out significant wealth, undermining consumer confidence and leading to reduced spending and investment.

2. Gold Standard: The rigid adherence to the gold standard limited the flexibility of monetary policy, exacerbating economic woes by constraining the money supply.

3. Decline in Lending: Reduced availability of credit stifled business investments and consumer spending, further contracting the economy.

4. Tariffs: Protectionist policies like the Smoot-Hawley Tariff imposed high taxes on imports, leading to a decline in international trade and worsening global economic conditions.

5. Banking Panics: A series of bank failures eroded public confidence in the financial system, causing people to withdraw their savings altogether, leading to a further decrease in the money supply.

6. Federal Reserve's Monetary Policies: The Fed's contractionary policies, such as raising interest rates, further restricted access to credit, deepening the economic contraction.

Stock Market Crash of 1929

On October 24, 1929, anxious investors began mass-selling overvalued shares, leading to the long-feared stock market crash. That day, known as "Black Thursday," saw a record 12.9 million shares traded.

Five days later, on October 29, "Black Tuesday," panic struck Wall Street again, with around 16 million shares traded. Millions of shares became worthless, and investors who had purchased stocks "on margin" (with borrowed funds) were entirely wiped out.

Following the stock market crash, consumer confidence plummeted, causing a sharp decline in spending and investment. Factories and businesses reduced production and started laying off workers. Those fortunate enough to keep their jobs faced falling wages and reduced purchasing power.

Many Americans, relying on credit, fell into debt as foreclosures and repossessions surged. The global adherence to the gold standard, which linked countries in fixed currency exchange rates, exacerbated the economic troubles, spreading them from the United States to the rest of the world, particularly Europe.

Economic and Social Impact

The Great Depression had profound economic and social impacts. Economically, it led to mass unemployment, with nearly 25% of the American workforce unemployed by 1933. Thousands of banks collapsed as panicked depositors withdrew their savings, leading to a loss of financial stability and trust. Many businesses went bankrupt due to reduced consumer spending and investment. Deflation caused prices to fall sharply, making debts harder to repay, while industrial production dropped significantly as factories closed or reduced operations. Additionally, international trade plummeted due to protectionist policies like tariffs, worsening the global economic situation.

Socially, the Great Depression caused widespread poverty, with many families losing their homes and savings. Hunger and malnutrition became rampant as people struggled to afford basic necessities. Homelessness increased, leading to the rise of shantytowns known as "Hoovervilles." The financial strain caused significant psychological stress, resulting in increased mental health issues. Family dynamics changed as more women and children entered the workforce, and many people, particularly from rural areas, migrated in search of work, leading to demographic shifts and urban growth. Crime rates rose as desperation and poverty drove people to illegal activities, and many children had to leave school to support their families, impacting their education and future opportunities. The Great Depression fundamentally reshaped both the American economy and society, leading to long-term changes in government policies and social structures.

Conclusion

In conclusion, the Great Depression was a pivotal event in U.S. and global history. Its causes were complex, including economic mistakes and policy failures. The impacts were severe, with high unemployment, widespread poverty, and major changes in society. This crisis led to significant government actions and reforms, shaping the modern welfare state and regulations to prevent future economic disasters. The lessons from this era highlight the need for economic stability, smart policies, and social safety nets to protect against future downturns.

Writer: Prasanna Chandankhede

Contact: cl.prasanna10@gmail.com +233(0)547905553