What was the Great Depression
The longest and most severe economic downturn in the history of capitalism, beginning in the United States in 1929 and spreading worldwide throughout the 1930s. Businesses shut down in wave after wave and unemployment surged in the US and many other countries, with effects lasting into the late 1930s.
Black Thursday and the stock market crash
On October 24, 1929 β "Black Thursday" β massive sell-offs began on the New York Stock Exchange, sending stock prices tumbling. Many investors at the time had bought stocks on margin, paying only a fraction of the value and borrowing the rest; as prices fell, forced sell-offs to cover those debts deepened the crash further. From the September peak to the November low, prices fell roughly 33%.
A bubble that had already built up before the crash
Even before the crash, production was slowing and unemployment was rising, yet stock prices kept climbing in an abnormal disconnect. Prices had risen to levels that actual corporate earnings could barely support, leaving a fragile structure where even a small piece of bad news could suddenly freeze investor confidence.
A chain of bank failures and credit crunch
As bank runs swept through β depositors rushing all at once to withdraw their money β thousands of banks shut their doors. When a bank collapses, everyone who deposited money there is hit along with it, and as the money supply dried up, the crisis spread from the stock market into the broader real economy.
Protectionism backfires
The US sharply raised tariffs on imports through the Smoot-Hawley Tariff Act, but other countries retaliated with their own tariffs, sharply contracting global trade overall. This is commonly cited as a case where a measure meant to protect domestic industry ended up freezing international trade and deepening the worldwide downturn.
The numbers the Depression left behind
US unemployment soared to roughly 25% by 1933 β one in four working-age people was out of a job. Over the same period, GDP shrank sharply, the Dow Jones Industrial Average fell dramatically from its peak, and countless banks failed as the economy took a severe blow across the board.
The arrival of the New Deal
President Franklin D. Roosevelt, inaugurated in 1933, pushed the New Deal, a program of active government intervention in the economy. It created jobs through public works and tightened regulation of banks and financial markets β a shift in the role of government that stands out from what came before. The US also moved off the gold standard during this period, a major change in monetary policy.
When did the Great Depression end
The New Deal helped the economy recover to some degree, but most assessments credit the decisive turning point to the massive expansion of military production during World War II. As factories ramped back up for war material and large numbers of the unemployed were put to work, the US economy moved into a full recovery in the 1940s.