Lesson 96 - The Great Depression
The Great Depression was the deepest and most severe economic downturn of the 20th century. Beginning in 1929 and lasting through most of the 1930s, it reshaped economies, governments, and financial systems worldwide. Studying the Great Depression helps us understand how fragile markets can be and how policy mistakes can turn a recession into a prolonged crisis.
Causes of the Great Depression
Historians and economists debate the exact mix of causes, but most agree on several key factors:
- Stock market crash of 1929 - Widespread speculation and excessive leverage led to a collapse in share prices.
- Bank failures - Thousands of banks closed, wiping out savings and reducing lending.
- Overproduction - Industry and agriculture produced more than consumers could buy.
- Falling global trade - Tariffs like the Smoot-Hawley Act deepened the crisis.
- Poor policy response - Governments tightened money supply and cut spending at the wrong time.
Table: Economic indicators during the Great Depression
Graph 1: US unemployment rate 1929–1940
Unemployment peaked at 25% in 1933 and remained high until World War II.
Graph 2: US GDP index 1929–1939
GDP contracted sharply until 1933 and recovered slowly during the New Deal, with another dip in 1937–38.
Story: A family in the Depression
The Johnson family lived on a farm in Iowa. When crop prices collapsed, they could not pay their debts. The local bank failed, and their savings disappeared. They bartered eggs and milk for clothes and fuel. Despite the hardship, their community pooled resources to survive. Their story reflects how millions endured the Great Depression with resilience and cooperation.
Responses and recovery
The US responded with Franklin D. Roosevelt’s New Deal programs. These included public works, financial reforms, and social safety nets like Social Security. The banking system was stabilized through deposit insurance. The Federal Reserve eventually shifted to more expansionary policy. Despite these measures, the economy remained weak until wartime spending in the early 1940s brought full recovery.
Summary
- The Great Depression was triggered by financial collapse and worsened by poor policies.
- Unemployment and GDP data show the severity of the downturn.
- Bank failures destroyed savings and reduced credit.
- Recovery began with New Deal reforms and was completed by wartime demand.
Key Terms
Further Learning
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