The Great Depression Explained

Great Depression Bread Line
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The Great Depression was a period of economic hardship that occurred between 1929 and 1941. This primarily impacted the United States of America, but consequences of the depression also had global effects.

 

To reduce the harm to American citizens, the US government implemented a range of economic measures with mixed success. Ultimately, it was the increase in production required when America entered into World War Two that ended this economic period.

Causes of the Great Depression

The event that began the Great Depression occurred in 1929.

 

At the end of the decade known as the 'Roaring Twenties', people had spent a lot of money on hire-purchase schemes, which meant that people had bought more than they could realistically pay for.

 

When the US stock exchange experienced a dramatic drop in share prices, people's personal wealth disappeared in one day, which resulted in dramatic economic changes.

 

The stock market crash occurred on 'Black Tuesday', the 29th of October 1929. 

 

Stock prices saw a dramatic drop in value, and people began selling their stocks as quickly as possible to save as much money as possible.

 

Unfortunately, panicked selling of stocks only decreased value further.

 

By the start of the next day, most people who owned stock in America had lost all of their wealth. 

 

With wealth gone and people now no longer able to pay for their hire-purchase items, banks had no money left. Millions of Americans panicked and rushed to the banks to withdraw whatever cash they had left.

 

Such rapid withdrawal of cash from the banks meant that banks also ran out of money.

 

As a result, banks all across America were forced to close. Those people who didn't act fast enough and went to their local bank, find the doors were locked and would never get their money back.


Wide-spread unemployment

The closing of so many banks meant that many businesses also lost their cash and were forced to close. As businesses closed across the country, people lost their jobs and had no other businesses to go to get another one. 

 

Some businesses began reducing their workers' wages to try and keep them in employment, but it meant that they barely had enough money to live on.

 

As a result, people began to limit their spending in order to just afford food for their families.

 

The number of people without jobs continued to increase during the first few years of the Great Depression.

 

In 1929, around 3% of the American population was unemployed. However, by 1933, around 25% were without a job. 


Roosevelt's 'New Deal'

The American President at the time of the stock market collapse was Herbert Hoover.

 

Unfortunately, Hoover never found a solution to the economic collapse and, when many unemployed people began living together in groups of shacks known as 'shanty towns', people angrily called them 'Hoovervilles'. 

 

However, in 1932, another presidential election occurred, where the American people had the opportunity to seek a solution to the Great Depression. Hoover ran for president again, but lost significantly to Franklin D. Roosevelt, who became the new US president.

 

Roosevelt began his presidency with a clear strategy. First, he closed all the banks in America and gradually reopened a few once they had reached economic stability. Then, Roosevelt announced a program of economic recovery, which he called the 'New Deal'.

 

The New Deal was a range of programs and new organisations that were set up to create jobs for people. He set up a group called the Agricultural Adjustment Administration to help farmers, and the Works Progress Administration to help people find work.

 

Ultimately, the US government began hiring people to work on government projects to get people paid once more. The New Deal saw some gradual economic improvement, but things were still very difficult for most Americans.


The outbreak of war

The event that finally ended the Great Depression was the surprise attack on Pearl Harbor by the Japanese in December 1941.

 

The attack forced Roosevelt to begin war preparations, and American factories were required to produce weapons and armaments for the government.

 

The explosion in production required many more factory workers, which created a dramatic change to unemployment. Furthermore, thousands of men were recruited into the armed forces, which gave them a steady income. 

 

By the start of 1942, the American economy was showing substantial improvements for the first time since 1929.

 

By the end of the Second World War in 1945, America had one of the strongest industrial and economic systems in the world.


Further reading