What was the Great Depression?
The Great Depression was a severe economic collapse that began in the United States in 1929 before spreading around the world, and lasted through most of the 1930s.
While Europe struggled during the post-World War I recession of the 1920s, life in the USA was looking rosy. Factories churned out consumer goods, the economy thrived and the American Dream of prosperity for all seemed within touching distance.
It looked as if anyone could become a speculator and get rich quick. Around 25 million ordinary Americans began borrowing money to purchase stocks. Then, as the decade drew to a close, share prices plummeted, panic selling ensued and Wall Street went into meltdown. Boom turned to bust and the American Dream to dust.
By 1933, nearly half of America’s banks had failed and 15 million people were unemployed.
- Has there always been panic buying? And when have people panic shopped through history?
- Does it always pay to trust the cash in your pockets?
Did the Great Depression only affect the United States?
Far from it. The decade-long global economic downturn began in the United States in 1929 after the Wall Street stock market crash. Although America had furthest to fall, the effects were felt everywhere.
What led to America’s financial failure?
After the Americans wrested their independence from Britain and went through their own civil war, the newly minted United States expanded to become the world’s most prosperous powerhouse.
As a cohesive nation, with few nearby competitors and vast natural resources, it was perhaps reasonable to assume that the former ‘colonies’ would overtake their European antecedents and become industrially and financially superior.
The might of the US was crucial to success for the Allies in World War I, but while the 1920s presented a new era of capitalist boom and personal freedom – even decadence – for many, the Wall Street Crash of 1929 brought a severe shock to the world.
What was the Wall Street Crash?
After weeks of decline, stock prices fell sharply on Friday 18 October. On the following Black Thursday, bankers bought up blocks of stocks to try and stabilise the market but, by Monday, it was in freefall. On Black Tuesday (29 October) the market lost $14 billion, making the total loss that week $30 billion.
As news of the stock market crash spread, customers rushed to their banks to withdraw their money, sparking disastrous ‘bank runs’. Economist Milton Friedman argued that it was this that caused the depression, rather than the crash itself.
- The Wall Street Crash: the day the bubble burst
- The credit crunch: “It’s a story of hubris followed by a fall”
Did the Wall Street Crash trigger the Great Depression?
The ‘Black Tuesday’ of 29 October 1929 remains the single greatest financial disaster in US history. From the excess of the ‘Roaring Twenties’, people suddenly found themselves with nothing. Over night, the world confronted the kind of capitalistic fall from grace, which reminded the international stock exchange that boom can, and will, lead to bust.
The crash, however, wasn’t the single cause of the depression. In fact, financial recovery looked hopeful for some time after. In a few months, the markets rallied to early 1929 levels. Yet fear had spread among consumers and investors, and with no upswing of confidence to be found, further storms lay ahead. And it didn’t just send ripples across other countries’ economies: it had a tsunami-like effect, showing how economically interconnected the world had become.
What made the Great Depression different to other economic crises?
In America at least, a more traditional source of suffering coincided with the financial situation. A great drought and a string of dust storms struck the American heartlands, which caused many farms to literally dry up and blow away, creating what became known as the ‘Dust Bowl’. Farming families had little choice but to leave everything behind and try their luck elsewhere. Hundreds of thousands of people were displaced, forced to travel to find work.
National unemployment levels reached 20 per cent at the height of the economic struggle, and even families with work saw their income drop by an average of 40 per cent. Shanty towns rose in the most stricken areas, soon being labelled ‘Hoovervilles’, after the President under whose watch the crisis had happened.
Did Al Capone really open a soup kitchen in Chicago?
Yes. Chicago gangster Al Capone, in one of his sporadic attempts at public relations, really did open a soup kitchen. For millions, soup kitchens provided the only food they would see all day. At Thanksgiving in 1930, Capone boasted of feeding 5,000 hungry men, women and children with a hearty beef stew.
When did commerce recover?
There was no magic solution to the depression, but a series of schemes in each country were designed to reverse the downturn.
In America, Franklin Roosevelt, President since 1933, promoted his ‘New Deal’ as a call to arms for greater equality, geared towards the ‘Three Rs’ – relief, recovery and reform. In truth, the US government was improvising, and no single central policy provided a cure for the sick economy. It was just, as in every country, a slow, painful grind, and modern economic recovery is no different. Unemployment, starvation, and war. The Great Depression seems very well named.
As in all tragedies – be they localised or global, like the Great Depression – there does often tend to be an artistic response to look towards, at least. American novelist John Steinbeck’s two great works Of Mice And Men and The Grapes Of Wrath were centrally themed around the experiences of American workers in the 1930s. Moreover, arguably the greatest hit record of the period was Brother, Can You Spare A Dime?, which was written in 1931 and popularised around the strugglingworld by Bing Crosby.
Was the Great Depression as bad in Britain?
Unlike the US, Britain hadn’t enjoyed a prosperous, buoyant 1920s. The cost of the four years of World War I had dictated that. With New York increasingly seen as the global centre of finance, Britain’s economy struggled to repair itself and unemployment remained high throughout the decade. When the Crash occurred, Britain tumbled into a depression that parliament – failing to enact the kind of New Deal-style recovery plan that ultimately revived American fortunes – couldn’t prevent. By 1934, Britain began defaulting on war debts owed to the US.
It was the North of England, and industrial centres across Britain, that were hardest hit. It resulted in the Jarrow March of 1936, in which around 200 impoverished shipbuilders and other industrial workers marched nearly 300 miles to present a petition to Westminster to reopen the shipyards, with a crushing lack of success.
As many European countries were in debt from World War I, the international financial crisis proved sluggish in recovery. Improvements were only evident by the end of the decade, just in time for another expensive world war to break out.
How did the Great Depression influence European politics?
Germany had defaulted on its war reparations two years earlier. Following the Wall Street Crash, the US had withdrawn capital from the country and, in attempting to achieve economic equilibrium, Chancellor Heinrich Brüning cut public expenditure, causing productivity to fall and unemployment to rise. The German banking system collapsed in 1931.
France had enjoyed a significantly more prosperous 1920s than either Britain or Germany. This was down to sizeable government investment in industry and infrastructure. In the early aftermath of the Crash, its economy appeared more resolute than those of its neighbours across the English Channel and to the immediate east. This didn’t last long. The global recession caused a fall in demand for French exports and the country sank into economic turmoil, with a succession of brief governments unable to stymie the fall.
Across these three European countries, severely depressed economies gave rise to radicalised politics, most significantly in Germany where Adolf Hitler became Chancellor in 1933 and established a one-party state that would violently reconstruct the face of Europe.