What is the Great Depression?

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  • Written By: Felicia Dye
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  • Last Modified Date: 15 January 2020
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A depression is an extreme financial downturn whose effects are experienced for an extended period of time. The Great Depression refers to an important part of American history characterized by extremely difficult economic times. During this period in the US, there was mass unemployment, large numbers of people living in poverty, and a high rate of business failure.

It is believed that Black Tuesday was a major contributing cause of the Great Depression. Black Tuesday refers to 29 October 1929, when people sold millions of shares of stock to a market that had an insufficient number of buyers. Much of the money that was used to purchase those stocks had been borrowed from banks. The result was a stock market crash that helped send the US into an economic crisis.

Although the stock market crash was a major factor, it was not the only cause of the economic disaster. The way was paved by a number of things, and history shows that the economy had begun to shrink before 29 October. The government had allowed monopolies to form, and mass production led to saturated markets at a time when the people who had money were weary of spending.


The hard economic times meant businesses were destined for big problems. Many could not survive. Industrial revenues dropped significantly and farm revenues were reduced to nearly half of their pre-depression totals. This resulted in loan defaulting on an even larger scale.

Among the businesses that failed during the Great Depression were more than 1,000 banks. When these financial institutions died, large numbers of people lost their savings. This happened during a time when one quarter of Americans were unemployed and when employed individuals’ salaries were significantly reduced. The banks’ failure was caused in large part because people acted as they had with stocks: fear drove people to want to withdraw their money on a mass scale, which resulted in cash shortages.

President Herbert Hoover and the Republican Party received a lot of the blame for the economic crisis. As a result, in 1932, a Democrat was elected to the White House. The new president, Franklin D. Roosevelt, and his administration rolled out many social and economic programs that were designed to provide relief and initiate reform.

Despite these immediate efforts by the new administration, it is World War II that is credited for improving the US economy. The war initiated massive government spending, which pumped money into the economy. This spending also created jobs and helped to boost wages.


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Post 10

@honeybees -- I also had conversations with my grandparents about living through the Great Depression. It seems like the generations that lived after that were not nearly as frugal or conservative.

One small example of this is my grandma would re-wash her aluminum foil and use it over and over again. As a young girl I thought this was silly. Why not just throw it away and use a new piece?

Post 9

My grandma talked often about the Great Depression,and how they really had to scrimp and save just to get by. It makes me feel kind of guilty with all the abundance we have today.

When they barely had enough food to feed their family, and maybe only ate once or twice a day, my kids are accustomed to three meals a day, snacks, and don't think anything about throwing something out if they don't like it.

Until the day my grandmother passed away she was a saver and tried to recycle everything she could. I think once someone lives through a time like that the Great Depression, it affects how they live the rest of their life.

Post 8

Reading about the high unemployment and business failures of the Great Depression sounds a lot like things are today. Has our current economy been compared to the likes of the Great Depression?

I believe there would have been a lot more banks and brokerage firms who would have gone under in the last few years had the government not stepped in and bailed them out. Maybe that is one thing that kept us from having another Great Depression.

Post 7

My grandfather talks about the Great Depression all the time. He was a young man at that time and basically kept moving from state to state to find work. Apparently there were no jobs whatsoever and people were constantly protesting the government.

Post 6

@mutsy-- I agree that there were a lot of factors leading to the Great Depression. Isn't that always the case when it comes to the economy?

From what I understand, a prosperous economy or a failing one, both take a long time. It's a combination of policy mistakes and the environment. We have control over one and not as much control over the other.

I'm sure that if we were to look at the bigger picture and study all the factors that contributed to the Great Depression, we would have a huge list of events and decisions on our hands. But people usually look at the bigger and most recent events and forget about the numerous smaller mistakes before that.

Post 5

I've always thought that war is bad for the economy because it requires so much resources and funding from the government, leaving less funds for other things like social services.

This is the first time that I'm hearing a war being credited for improving the economy. But I guess that makes sense. If you have an economy where nothing is happening because no one can afford to buy anything, government spending would change that around. It's interesting how most Great Depression books and articles don't mention this though.

Post 3

Crispety-The FDR administration was laden with excessive governmental intervention measures that chipped away at American exceptionalism and entrepreneurship.

He was probably the first US President that was dangerously close to being a socialist dictator. This is why when he died during his third term in office, Americans quickly added an amendment to the constitution that limited President’s to just two terms.

In fact many say that it was World War two when the Great Depression ended. Roosevelt’s endless governmental programs prolonged the misery, but it was the war that started to put an end to this socialist agenda.

Post 2

Mutsy-The Great Depression effects were numerous. First, the Great Depression unemployment was about 25% at its peak.

The Great Depression 1932 resulted because President Hoover, at the time raised the top tax rates from 24% to 63%. But the tax increases did not end there, they continued with FDR in 1936 that raised tax rates to 79%.

This gave business owners little incentive to even try to create new businesses or products because so much of their hard earned money was taken away in taxes. As a result, businesses lay off even more people and the economy suffered even more.

Washington needs to understand that businesses create jobs, not the federal government. They have demonstrated that they actually get in the way of businesses creating more jobs.

Post 1

A lot of factors caused the Great Depression 1929, but mainly it was caused by speculation in the stock market. The collapse of the stock market led to a loss of over 40 billion dollars which led to mass panic.

The American Great Depression causes were many. According to the Heritage Foundation one of the highest contributing factors of the Great Depression was the passage of the Smoot-Hawley Act.

This was a protectionist tariff that was placed on all imports, as a result other countries refused to buy US goods and the economy went into a further tailspin.

In addition about 9,000 banks failed during this time and the Federal Reserve raised interest rates instead of lowering them to get the remaining banks on their feet.

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