World History Blog Logo

A Short History of the Great Depression

1929 – 1939

By Ayesh Perera, Last Updated: June 03, 2021

Alternative Titles: Depression of 1929, Slump of 1929

Destitute pea pickers in California

This iconic photograph made real the suffering of millions during the Great Depression. Dorothea Lange, “Destitute pea pickers in California. Mother of seven children. Age thirty-two. Nipomo, California” or “Migrant Mother,” February/March 1936. Library of Congress.

The Great Depression was a severe global economic downturn which started in the United States in 1929 and lasted until 1940s. This was the deepest, lengthiest and the most widespread economic depression of the 20th century.

The crash of the overly optimistic U.S. stock market is often seen as the culprit of the catastrophe, and President Franklin D. Roosevelt is popularly hailed as the hero who saved the U.S. economy.

A closer examination of the facts, however, unveils a more complex picture of what actually transpired.

Key Takeaways: Great Depression
  • The Great Depression was the deepest, lengthiest and the most widespread economic downturn of the 20th century; it started in the United States in 1929 and lasted until the early 1940s.
  • The 24th of October 1929, also known as Black Thursday, marked the official beginning of the Great Depression.
  • The monetary policy of the Federal Reserve, which supposedly induced a credit-driven boom, is seen by some economists as the primary cause of the stock market crash on Black Thursday.
  • The panic following the collapse of the stock market resulted in nearly 9,000 bank failures as well as manifold interventionist policies by the Hoover administration.
  • Following a landslide electoral victory, President Franklin Delano Roosevelt launched the ambitious New Deal programs, intended to restore America’s economy.
  • The Great Depression ended with American’s entrance into WWII; while popular opinion holds that the New Deal and the war effort were instrumental in ending the Depression, such explanations have been challenged by some economists.

The Wallstreet Crash

Following nearly a decade of economic prosperity and cultural dynamism, also known as the ‘Roaring Twenties,’ the U.S. stock market suddenly experienced an unprecedented and the most devastating plummet in history.

The nation was immediately thrown into panic on the 24th of October 1929, also known as Black Thursday, which marked the largest sell-off of shares in American history.

The Origins of the Great Depression
Black Tuesday

Crowd of people gather outside the New York Stock Exchange following the Crash of 1929,” 1929. Library of Congress

A few days later, in what would be known as Black Tuesday, investors traded nearly 16 million shares. This historic collapse of share prices on the New York Stock Exchange would officially mark the beginning of the Great Depression.

Before Black Thursday

Although the sudden stock market crash is often seen as the primary cause of the Depression, the U.S. economy had begun shrinking two months prior to collapse of the stock market.

Economists such as Murray Rothbard and Friedrich Hayek have reasoned that the Federal Reserve should shoulder much of the blame for the Great Depression for expanding the money supply in the 1920s, and thereby inducing an unsustainable boom driven by credit.

This view also holds that by the time the Federal Reserve tightened its monetary policy in the spring of 1928, it was too late. In fact, in the February of 1929, Fredrich Hayek would publish a paper indicating that the Federal Reserve’s policies would create a crisis starting in the credit and stock markets.

Bank Runs

American banks were the immediate institutional victims of the stock market crash. Many of them had invested much of their client savings in the stock market.

Thus, in the aftermath of the crash, these banks were forced to shut down. The bank closures set off a panic across the country. Consequently, for fear of losing their deposits, many people started rushing to the banks which were open in order to withdraw their money.

These demands for massive and simultaneous withdrawals caused more banks to close down. By 1930, therefore, more than 3,000 banks had closed down. In the ensuing years, nearly 6,000 more banks would fail.

Many individuals who were unable to get to their banks in time to withdraw their money ended up going bankrupt while the banks which survived the panic became increasingly unwilling to lend money.

President Hoover’s Response

Soon after the stock market crash, in the November of 1929, then U.S. President Herbert Hoover called a meeting with the major industrial leaders of America. Several key policies resulted from this meeting.

The CEOs agreed to maintain the current wage rates and minimize layoffs while President Hoover promised in return to convince workers neither to strike nor to demand additional benefits or pay. For a while, the strategy seemed to work.

Henry Ford, as a gesture of solidarity, even raised salaries. However, by 1931, the prices of industrial goods started declining. In the meantime, many businesses shut down, and unemployment rose sharply and hit a high of 24.9% in 1933.

Herbert Hoover and the Politics of the Depression
Herbert Hoover and the Politics of the Depression

Unemployed men queued outside a depression soup kitchen opened in Chicago by Al Capone,” February 1931. Wikimeida.

The economywide deflation was further exacerbated by the Federal Reserve’s decision to maintain its tight monetary supply. This left people with hardly any money to either invest or purchase goods and services.

Around this time, President Hoover signed the Smoot-Hawley Tariff Act which imposed the highest tariffs on imports in 100 years.

This effort to safeguard U.S. industries backfired as America’s trading partners decided to retaliate by doing the same for U.S. made goods. The consequent decline in American exports further worsened the nation’s economic situation.

The Dust Bowl

Further adding to the miseries of the Depression was the severe dust storms which ravaged the agriculture and ecology of the American prairies during this period.

Black Tuesday

The Great Plains region suffered from drought from 1934-1937, known today as the Dust Bowl. An extended drought and overuse of land rendered the top layer of soil to dust. Heavy winds then blew the topsoil in places like Oklahoma, Kansas, Colorado, New Mexico, and The Texas Panhandle, creating dust clouds called 'black blizzards.'

Sixty percent of the people fled the region during this time as a result. The Dust Bowl was most devastating famine in United States history. Artists, from authors to singers, expressed the need to be in harmony with nature, rather than try to dominate and exploit it.

The severity of the accompanying drought and the want of dryland farming served only to worsen the situation. Small farmers who were mostly already in debt were probably the hardest hit.

After the storms destroyed the crops, these farmers could neither pay their debts nor even feed their families. As the banks came to foreclose, they became unemployed as well as homeless.

Life during the Great Depression

Following the stock market crash, even the wealthiest had to tighten their belts. Middle-class professionals such as doctors and lawyers saw their income plummet by nearly half.

The Lived Experience of the Great Depression
The Lived Experience of the Great Depression

“Hooverville, Seattle.” 1932-1937. Washington State Archives

Many blue-collar workers lost their jobs while those who were fortunate enough to keep theirs, worked for reduced pay and fewer hours. As many families faced financial instability, if not ruin, frugality became the new norm.

Many households maintained kitchen gardens. Macaroni, cheese, chipped beef, and chili became favorites. As trips to the theatre became more expensive, potluck dinners became a popular way of social entertainment.

FDR’s New Deal

Despite the manifold efforts of President Hoover, the economy experienced little improvement, and he was blamed for the nation’s woes.

Consequently, Hoover lost in a landslide to Franklin Delano Roosevelt (FDR) in the 1932 Presidential election. Soon after taking office, FDR launched a host of federal programs with the intention of solving America’s economic problems.

His avalanche of alphabet-soup programs included the Works Progress Administration, the Agricultural Adjustment Administration and the National Recovery Administration. FDR’s strategies included subsidized loans, public works projects, government handouts, federal jobs and the harassment of businesses.

These were politically popular, and would help reelect him multiple times. However, whether President Roosevelt should be credited with rescuing America from the Depression is subject to question. The Centerpiece of the New Deal was the National Industrial Recovery Act (NIRA) of 1933.

The NIRA invented cartels, known as ‘codes’ to restrict competition in nearly 500 different industries. Additionally, private businesses were required to reduce output and maintain high wages and prices. Businessowners who refused to obey the requirements were fined and occasionally even arrested.

Finally, the NIRA was struck down by the Supreme Court as an unconstitutional violation of the separation of powers. Similarly, the Agricultural Adjustment Act of 1933, too, demanded the restriction of production to maintain high prices.

While millions of Americans were starving, output above the stipulated levels was either destroyed or sent abroad. Moreover, the ‘marketing orders’ of 1937 cartelized the production of fruits and milk to boost prices. At the same time, new minimum wage laws decreased the demand for low-skilled laborers and the introduction of the Social Security tax raised the costs of compensation.

Moreover, the Wagner Act rendered more bargaining rights to unions. Eventually, compulsory unionism led to a rise in U.S. work stoppages from an annual average of 980 from 1922 to 1932, to a record high of 4,740 in 1937.

Ironically, the policies designed to maintain high prices started backfiring, and FDR’s Justice Department had to hire hundreds of attorneys to launch a blitzkrieg of lawsuits in 1938 against a multitude of industries for conspiring to keep prices high. Even by the end of the 1930s, the U.S. economy had not still recovered.

More and more interventionist policies were handed down by the government as FDR kept demonizing business leaders, calling them ‘privileged princes’ and ‘economic royalists’ seeking an ‘industrial dictatorship’ and a ‘new despotism.’

The End of the Depression

Following the bombing of Pearl Harbor on the 7th of December 1941, the United States was thrust into Word War II.

America’s involvement in the war required the mass production of weapons, ships and aircraft. Women had to work to advance the industrial effort while men were sent abroad to fight. This manifest increase in demand for production caused by the war is widely seen as marking the end of the Great Depression.

However, there are economists such as Professor Lee Ohanian of UCLA who hold that the natural forces of the free market could have restored the economy, and returned the output and employment to normalcy by 1936.

The delay in recovery, they contend, was caused by the interventionist policies of the Roosevelt administration which ironically served to prolong the Depression.

A Final Note

The impact of the Great Depression reached far beyond America’s borders. The United Kingdom was thrust into a financial crisis and was driven off the gold standard in 1931.

Unemployment in Australia reached 29%, leading to civil unrests, while the Siamese revolution of 1932 dissolved the absolute monarch of Thailand. The Soviet Union, however, on account of its little international trade seemed unaffected by the Depression.

During this period, Russia transformed itself from a rural economy to a heavy industrial society. Nonetheless, when the Depression had run its course, the Soviet Union was still poorer than most of the developed nations following their worst economic crisis.

Many economists have speculated on whether the Great Depression could have been prevented. Despite the diversity of views which exists among economists, most American textbooks suggest that a Keynesian solution of massive deficit spending by the government could have countered what they describe as a natural fluctuation in the inherently flawed free market.

However, there are prominent economists such as Anna Jacobson Schwartz and Milton Friedman who have suggested that the Federal Reserve could have engaged in open market purchases of government bonds as the lender of last resort, and that such a response would have prevented the bank failures which devastated the economy.

Cite this Article (Chicago Style)

Perera, A.. "A Short History of the Great Depression." World History Blog, June 21, 2021.

About the Author

Ayesh Perera recently graduated from Harvard University, where he studied politics, ethics and religion. He is presently conducting research in neuroscience and peak performance as an intern for the Cambridge Center for Behavioral Studies, while also working on a book of his own on constitutional law and legal interpretation.

  • A Short History of the Great Depression
  • Eichengreen, Barry. "Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses of History." Oxford: Oxford University Press, 2015.
  • Turkel, Studs. "Hard Times: An Oral History of the Great Depression." New York: The New Press, 1986.
  • Watkins, Tom H. "The Great Depression: America in the 1930s." New York: Little, Brown, 1993.
  • Watkins, Tom H.(1993). "The Great Depression: America in the 1930s." New York: Little, Brown.