From Industrial Revolution to Great Depression: Economic Shifts

Characteristics of the Second Industrial Revolution

In the final decades of the nineteenth century, a new wave of technical innovations helped to increase production capacity and dramatically improve transportation systems. As a result, trade multiplied, the European population began to shift to other world regions, and new countries were rapidly industrializing.

The greatest improvements were related to new energy sources, which made possible the widespread use of electricity and oil in place of the steam engine and coal. Among the advantages of electricity were its outstanding cleanliness and flexibility to adapt to the needs of production. The use of electricity caused an increase in productivity, and to these benefits was added the rapidly declining price of power. Electricity had numerous applications in communications, the transportation industry, and even entertainment.

Oil was initially used for illumination, but progress in its distillation made it possible to extend its use. Improvements in the combustion engine gave way to the automobile, the main symbol of the transportation revolution in the twentieth century. These successes were made possible by closer relations between business and science. As a result of these developments, new products were created, and applications were found for materials seldom used until then, such as:

• Glass
• Artificial fibers
• Rubber
• Chemical dyes and fertilizers
• Aluminum

These innovations promoted the rapid growth of new productive sectors.

Economic Causes of the 1929 Depression

Until September 1929, the trend of the New York Stock Exchange had been high, but in that month, some symptoms appeared that indicated a downward trend. In October, the situation exploded and the mass selling of shares began, which lowered their prices. On October 24, Black Thursday on Wall Street, the New York Stock Exchange fell dramatically. Thirteen million shares were launched onto the market at low prices, and with no buyers to be found, many people were ruined. There was a dramatic fall in prices that continued this trend in subsequent years.

The collapse of the stock market caused the ruin of thousands of modest shareholders, while large companies watched helplessly as the price of their securities steadily declined. This was the result of several years of intense stock market speculation; in order to earn easy money, people had invested heavily in the stock exchange, which had artificially pushed up prices.

Because of the stock market collapse, many people withdrew their money from banks. The banks could not cope with the volume of depositors demanding their money back, forcing them into bankruptcy. The stock market crisis affected the entire U.S. economy. Companies were ruined, creating a fragile economic situation. This led to a significant increase in unemployment and lower wages, which in turn meant a decline in the purchasing power of the population. The 1929 crash serves as a clear demonstration that an economy cannot rely solely on financial speculation while ignoring the fundamental mechanisms of production and consumption.