The 1929 Wall Street Crash and the Great Depression
The Wall Street Crash of 1929
Economic Imbalances Post WWI
Following World War I, global governments aimed to restore pre-war prosperity. Initial success in 1918-1919 gave way to a crisis in 1920, marked by falling prices and dashed hopes. While some nations sought economic stability through strong currencies, Germany’s monetary system collapsed, wiping out savings and increasing reliance on foreign loans. The Soviet Union and Eastern European countries faced different challenges, with Poland, Hungary, and Austria experiencing significant currency devaluation. A brief recovery began in 1924, but underlying imbalances persisted.
America’s Rise and the Illusion of Prosperity
World War I propelled the United States to become a leading global power, a major creditor, and a key influencer in Europe. The war fueled industrial growth, particularly in war-related sectors. Agriculture also flourished, and the American merchant fleet expanded significantly. The 1920s witnessed the rise of new industries, including power, chemistry, aviation, automotive, film, and radio. Technological advancements, like Taylorism and Fordism, revolutionized production and work organization. Mass production became the norm, stimulating related sectors like construction. However, agricultural growth lagged behind industrial progress, leading to economic hardship for farmers.
Despite this imbalance, optimism and consumerism reigned. The stock market boomed, attracting investors worldwide, with the New York Stock Exchange at the center. However, the global economy struggled to keep pace with the United States, leading to overproduction, falling prices, unemployment, and reduced purchasing power by 1925. By the end of the decade, stock prices had soared by 90%, driven by speculation and exceeding their real value.
The Crash and the Onset of the Great Depression
Seeking investment opportunities, entrepreneurs lent money abroad and expanded domestic industries. As sales faltered, they turned to luxury goods and speculation, particularly in the stock market. Borrowing money to buy inflated stocks became increasingly common, driven by high potential returns. Warning signs, such as stagnant wages and rising inventories, were ignored. The inevitable crash came in October 1929, triggering a global economic crisis.
On October 24, 1929 (Black Thursday), the stock market plummeted. Millions of shares went unsold, ruining countless investors. Panic ensued, leading to bank runs. Unable to meet withdrawal demands and burdened by bad debts from expanded credit, banks collapsed. The Great Depression had begun.
The Global Impact of the Depression
The interconnected global economy, particularly Europe’s dependence on the United States, ensured the Depression’s widespread impact. Falling American prices crippled industries in other countries, reducing exports. Simultaneously, declining U.S. demand further hampered global trade. The repatriation of American funds, especially from Germany, exacerbated the crisis. The Depression’s effects were felt worldwide, impacting countries from Austria and Britain to Latin America and Southeast Asia.
The New Deal and Keynesian Economics
The crisis prompted a reassessment of government’s role in the economy. In 1933, Franklin D. Roosevelt became U.S. President, implementing the “New Deal” to revitalize the economy. Inspired by John Keynes’s economic theories, the New Deal focused on regulating the economy, stimulating investment, credit, and consumption, and reducing unemployment. Public spending targeted social security and education.
Roosevelt’s measures included bank assistance, farm subsidies, wage increases, reduced working hours, job creation through public works, healthcare plans, and retirement pensions. While the New Deal achieved some stabilization, full employment remained elusive, leading to social tension and confrontation throughout the 1930s.