Overview of the Great Depression
The Great Depression was a severe worldwide economic downturn that began in 1929 and lasted until the late 1930s, marked by massive unemployment, bank failures, and a sharp decline in industrial production. It originated in the United States but spread globally, affecting millions and reshaping economies.
Key Causes: Stock Market Crash and Speculation
The immediate trigger was the Wall Street Crash of October 1929, fueled by rampant stock market speculation and buying on margin. Investors borrowed heavily to purchase stocks, creating an unsustainable bubble. When confidence shattered, stock prices plummeted, wiping out wealth and triggering panic selling.
Banking Failures and Monetary Policy Errors
A wave of bank runs followed as people withdrew savings en masse, leading to over 9,000 bank failures by 1933. The Federal Reserve's failure to inject liquidity exacerbated the crisis, contracting the money supply by a third and deepening deflation. This lack of intervention turned a market correction into a prolonged depression.
Broader Economic and Global Factors
Underlying issues included overproduction in agriculture and industry, unequal wealth distribution limiting consumer spending, and the Smoot-Hawley Tariff Act of 1930, which raised trade barriers and stifled international commerce. The gold standard's rigidity also prevented countries from expanding money supplies to stimulate recovery.