The Great Depression: Causes and Effects 1929-1939

The Great Depression, a period of severe economic downturn, lasted from 1929 to 1939. It was the worst economic depression in the history of the United States. While economists and historians often point to the stock market crash of October 24, 1929, as the start of the downturn, the reality is that the Great Depression was caused by a confluence of factors, not just one single event.

In the United States, the Great Depression crippled the presidency of Herbert Hoover and led to the election of Franklin D. Roosevelt in 1932. Promising the nation a "New Deal," Roosevelt would become the nation's longest-serving president. The economic downturn wasn't just confined to the United States; it affected much of the developed world. One consequence of the depression in Europe was the rise of the Nazi party to power in Germany, sowing the seeds of World War II.

Key Factors Contributing to the Great Depression

Stock Market Crash of 1929

Remembered today as "Black Tuesday," the stock market crash of October 29, 1929, was neither the sole cause of the Great Depression nor the first crash that month. The market, which had reached record highs that very summer, had begun to decline in September. On Thursday, October 24, the market plunged at the opening bell, causing a panic. Though investors managed to halt the slide, just five days later on "Black Tuesday" the market crashed, losing 12 percent of its value and wiping out $14 billion of investments. Within two months, stockholders had lost more than $40 billion dollars. Even though the stock market regained some of its losses by the end of 1930, the economy was devastated. America had truly entered what is now known as the Great Depression.

Bank Failures

The effects of the stock market crash rippled throughout the economy. Nearly 700 banks failed in the waning months of 1929, and more than 3,000 collapsed in 1930. Federal deposit insurance was as-yet unheard of, so when banks failed, people lost all their money. This sparked widespread panic, causing bank runs as people desperately withdrew their money, forcing even more banks to close. By the end of the decade, more than 9,000 banks had failed. Surviving institutions, unsure of the economic situation and concerned for their own survival, became unwilling to lend money, further constricting the economy.

Reduction in Purchasing

As people lost their jobs, they were unable to keep up with payments for items they had bought through installment plans. Repossessions and evictions became commonplace. Consequently, more and more inventory began to accumulate. The unemployment rate soared above 25 percent, which meant even less spending to help alleviate the economic situation.

American Economic Policy with Europe

Congress passed the Tariff Act of 1930, better known as the Smoot-Hawley Tariff. This measure imposed near-record tax rates on a wide range of imported goods. A number of American trading partners retaliated by imposing tariffs on U.S.-made goods. As a result, world trade plummeted by two-thirds between 1929 and 1934. By then, Franklin Roosevelt and a Democrat-controlled Congress passed new legislation allowing the president to negotiate significantly lower tariff rates with other nations.

Drought Conditions

Severe drought conditions in the Midwest, known as the Dust Bowl, led to environmental destruction, reduced agricultural output, and further job losses, exacerbating the economic crisis.

Roosevelt and the New Deal

In response to the crisis, President Roosevelt implemented the New Deal in 1933. This series of government programs aimed to create jobs, stimulate the economy, and provide relief to those suffering. Additionally, the onset of World War II and the associated increase in industrial production for the war effort played a significant role in ending the Great Depression.