Economic Impact and Origins of the 1929 Great Depression
Causes of the 1929 Crisis
Overproduction and stock exchange trading were central factors in the economic downturn.
Overproduction
The United States saw a sharp increase in production due to technical renovation and the rationalization of work. However, supply began exceeding demand, causing prices and profits to stagnate. The increase in production and market saturation resulted in a surplus of stock, which led to an overall drop in prices.
Stock Market Speculation
As company profits stopped growing, investments were redirected to the Stock Exchange. This increased demand for stocks caused an artificial rise in prices.
The Stock Market Crash and Crisis Extent
The 1929 crisis began with the fall of the New York Stock Exchange. Black Thursday initiated the process: in the absence of security, everyone wanted to sell their shares to recover their money, which increased the demand for liquidity. The offering of securities was so great that prices plummeted. Banks tried to buy stronger stocks to halt the collapse.
From the Stock Market to the Banks
Banks were the first affected. They had granted loans to invest in the stock market, and the ruin of investors prevented their repayment. Mistrust grew, and customers sought to recover their deposits for fear of bankruptcy.
From Banking to Commerce, Industry, and Agriculture
Without banks, there was no credit for industry, trade, or agriculture. Lacking economic resources, businesses began to accumulate unsold products, and prices and profits fell. This forced the closure of businesses and led to increasing unemployment.
The Great Depression
The deeper implications included the long duration of the crisis and its universal significance. From a social point of view, unemployment accentuated social antagonisms and the industrial actions of trade unions. Political ideas were radicalized, leading to mistrust and suspicion regarding the Treaty of Versailles and reparations. There was a return to protectionism, as each country tried to solve its problems of overproduction by protecting domestic markets with high customs fees.
The New Deal
Since 1933, U.S. President Roosevelt pushed the New Deal economic policy. This plan included public works, the introduction of unemployment benefits, minimum wages, and maximum working hours. He also devalued the dollar to boost exports and reformed the banking and stock market systems. The New Deal sparked a certain resurgence of private investment, though it failed to fully replace public spending. However, unemployment fell, marking a profound change in the economy.