The Great Depression of the United States



The great depression is an extreme worldwide economic depression preceding the Second World War that originated in the United States of America around 4th September 1929 after a fall in the stock prices that became global news in what transpired to be a collapse of the stock market in 29th October 1929 commonly referred to as the Black Tuesday (Egan 25). It began in 1929 in the USA and ended in 1941.Three major factors combined to lengthen the period and the severity of the Great Depression. Initially, a financial crisis came up from the peace settlement and the war. Secondly, a crisis erupted from the production and distribution of commodities in the world market and lastly, problems escalated because no major Western European country or the United States provided responsible economic leadership.

The depression is known to be the longest, widespread and deepest in the 20th century. The effects of the depression were severe in the United States with unemployment rates rising to as high as 25% and the devastating effects were experienced in countries both rich and poor. The personal incomes, tax revenues, business profits, commodity prices reduced drastically and international trade declined above 50%. The negative effect of the Depression was felt globally as the worst crisis ever in the United States (McElvaine 1984). The great depression affected all sectors of the economy from construction industries to farming, mining and logging areas.

The beginning of the great depression is attributed to the stock market crash of 29 October 1929. Panic struck when stock prices started dropping rapidly without hope of recovery and massive losses were incurred. Investors became bankrupt with no one to buy their shares and banks started closing down since they lost client money deposited as savings invested heavily in the stock markets. People also feared that the banks would be unable to meet their withdrawal requirements and hence started pulling out their money from the banks. Businesses and industries had lost their own capital due to bank closures and the stock market crash and therefore had to cut wages or reduce working hours which led to the unemployment of many citizens (Egan 2006). Consumer spending also reduced due to wage cuts and therefore businesses could not sustain their own operations and were forced to shut down.


By mid-1930, interest rates had dropped to very low levels; consumer spending and investment were depressed. Due to the massive losses incurred in 1929, consumers cut back their expenditure by 10% and a severe drought known as the Dust Bowl that lasted 6 years from 1930 to 1936 struck the agricultural heartland of the USA and aggravated the problems of the Great Depression (Egan 2006). Failure by the government to increase the money supply during the crisis resulted in deflation between 1929 and 1933. Automobile sales declined as well as prices of commodities in general and a deflationary circle began in 1931. The banks were permitted to fail and there was no confidence restored in the banking system by the government. The end of 1930 witnessed the suspension of 1,350 banks from operations. The congress passed the Smoot-Hawley tariff in June 17th 1930 in an attempt to protect American manufacturers from foreign competition only to worsen the crisis in Europe (McElvaine 1984).

In the year 1931 there is a deflation spiral and the Unemployment Relief Committee released a statement revealing that millions of American citizens were unemployed. The Federal Reserve government had raised the discount rate from 2.5% to 3.5% and the number of banks that had suspended their operations from 1931 had increased to 2,293. A reconstruction finance corporation was created in 1932; the Emergency Relief and Construction Act also were passed during this year. The federal law was updated requiring that banks borrowing from Reconstruction Finance Corporation be made public and the Revenue Act was passed which was the nation’s largest increase in peacetime tax in the country’s history (Tawa 2009). Approximately 4,000 banks had suspended their operations in 1933 and America got off the gold standard during this year. Franklin D. Roosevelt was inaugurated as the 32nd president of the United States and signed the economy Act.

The Gold Reserve Act was passed and congress created the Federal Farm Mortgage Corporation in 1934. The securities exchange commission and the federal communication commissions were established and an Export-Import bank was created in Washington to assist in financing the U.S trade with the Soviet Union. The increase in the rate of export duties led to passing of the Banking Act in 1935 since many farmers defaulted in paying borrowed money due to heavy losses incurred in exportation business and the low prices fetched by American export commodities in foreign markets.

The United States Housing Act was passed in 1937 to create the Housing Authority to enable low income earning individuals to acquire a 60 year loan designed for small communities in order to clear slums, construct projects and grant subsidies (Egan 2006). The farm security agency was also created through the Bank- Head Jones Farm Tenant Act to cater for migrant workers housing, provide medical care to the workers and their families and help them in finding jobs. In 1938, the president established the March of Dimes and the economic contraction ended and recovery began. The New York world fair opened in 1939 and the Selective Training and Service Act are passed requiring men to register for military training (Egan 2006). Franklin D. Roosevelt wins a third term as president and the Transportation Act and Investment Advisers Act are passed in 1940.

The great depression ended in 1941 with the Japanese attack on Pearl Harbor and the U.S.A declaring war on Japan which led to the beginning of the Second World War. The United States Government spending on the war accelerated the recovery from the great depression since it helped to reduce the levels of unemployment. In the USA, massive spending on the war doubled the economic growth rates masking the effects of the Depression or entirely ending them. Businessmen doubled their efforts for greater output due to the advantageous and generous government contracts and ignored the heavy taxes being imposed and the exacerbating national debt.


The fall of the stock market and collapse and closure of more than 40% of the American banks by the year 1933, led to strict banking and trading regulations being put in practice as well as protections in the financial sector imposed by the newly established Securities and Exchange Commission and the Federal Deposit Insurance Corporation (McElvaine 1984). The effects of the Great Depression were numerous ranging from societal change, mass migration and the expanded role of the government. President Franklin D. Roosevelt introduced a New Deal between 1933 and 1938 which consisted of programs geared towards pulling America out of the Great Depression by addressing the levels of poverty and the high rates of unemployment (McElvaine 1984).

As a result of the Dust Bowl that resulted in farmers abandoning their fields, migration patterns from the rural areas to urban centers emerged in search of employment. Many of the American citizens who survived the Depression live the rest of their lives suspicious of the stock market, thrifty in their livelihood and wary of the banks due to the happenings of the Great Depression. The FDR’s New Deal expanded the roles of the government to unparalleled levels that lasted long enough even after the country had recovered from the financial and economic crisis.


The Great Depression will be remembered in history as that period in which a financial and economic crisis loomed worldwide and almost caused the collapse of the world’s financial system (Egan 2006). The American citizens have witnessed a major transition in their economy that led the country out of the Great Depression through the entry into the Second World War that created employment in the industries responsible for making military equipments and spurred the much needed economic growth.

The numerous policies and laws passed by the then president Franklin D. Roosevelt also helped to bring back the economic and political stability of the country. Even though the Depression is said to be the longest, most widespread and deepest of all time, many practical and amicable solutions came into place that have influenced the country since then and into the 21st century. The world has been liberated financially, politically and economically by the Depression and the citizens enjoy the struggle by the previous governments to make life accommodating and fulfilling.

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