Great Depression of America. How the largest crisis in US history began

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

On October 24, 1929, in the United States there was a strong collapse of the stock market, called "Black Thursday" and which became the beginning of the Great Depression.

The US stock market crash in October 1929 is considered the beginning of the Great Depression. There have been economic crises in American history before, but none of them dragged on for more than four years. The United States experienced the Great Depression three times longer than the economic shocks of the past.

Wall Street Bubble

The twenties in America were marked by the consumer revolution and the subsequent speculative boom. Then the stock market grew at a faster pace - from 1928 to 1929. the average cost of securities soared by 40% per annum, and the trade turnover increased from 2 million shares per day to 5 million.

Citizens, obsessed with the idea of getting rich quick, invested all their savings in corporate stocks in order to subsequently sell them for more. As you know, demand creates supply, and the cost of securities grew exponentially. The Americans were not stopped by the inflated prices of shares, and they, tightening their belts, continued to buy them in the hope of a good jackpot in the future. To purchase securities, investors actively took out loans. The excitement with stocks created a bubble, which, according to the laws of economics, sooner or later had to burst.

And the time for this bubble came on Black Thursday in 1929, when the Dow Jones Industrial Average dropped to 381, 17, and investors in panic began to get rid of securities. More than 12.9 million shares were sold in one day, and the Dow Jones index dropped another 11%.

Black Thursday was the first link in the chain of the 1929 crisis. The stock market crash led to Black Friday (October 25), Black Monday (October 28) and Black Tuesday (October 29). During these "black days" more than 30 million securities were sold. The stock market crash has ruined thousands of investors, whose losses were estimated at at least $ 30 billion.

Following the bankrupt shareholders, one after another, banks began to close, which actively issued loans for the purchase of securities, and after the stock exchange panic, they admitted that they could not return the debts. Bankruptcies of enterprises followed the bankruptcies of financial institutions - without the opportunity to obtain loans, factories and various organizations could not continue to exist. The large-scale bankruptcy of enterprises resulted in a catastrophic rise in unemployment.

Years of crisis

Black October 1929 is considered to be the beginning of the Great Depression. However, the stock market crash alone was clearly not enough to trigger such a large-scale economic collapse. Economists and historians to this day argue about the true causes of the Great Depression. First of all, it should be noted that the crisis did not start from scratch. A few months before the stock market downturn, the American economy was already steadily slipping into a recession - industrial production was declining at a 20 percent rate, while wholesale prices and household incomes were falling.

According to a number of experts, the Great Depression was provoked by a crisis of overproduction of goods. In those years, it was impossible to buy them due to the limitation of the volume of the money supply - dollars were tied to the gold reserve. Other economists are convinced that the end of the First World War played an important role.

The fact is that the American economy was heavily dependent on defense orders, and after the peace came, their number declined, which led to a recession in the US military-industrial complex.

Among other reasons that caused the crisis, economists name the ineffective monetary policy of the US Federal Reserve and the increase in duties on imported goods. The Smith-Hawley Act, designed to protect domestic production, led to a decline in purchasing power. And since the 40 percent import duty made it difficult to sell the products of European suppliers to the United States, the crisis spread to the countries of the Old World.

Germany and Great Britain were hit hardest by the crisis that originated in America. A few years before the collapse of Wall Street, London revived the gold standard by assigning a pre-war denomination to the pound.

The British currency became overvalued, which caused British exports to rise in value and cease to be competitive.

To support the pound, the UK had no choice but to take loans overseas, in the United States. And when New York shuddered from "Black Thursday" and the rest of the harbingers of the Great Depression, the crisis moved towards Foggy Albion. And from there a chain reaction began across all European states that had just recovered from the First World War.

Germany, like Britain, suffered from the American credit needle. In the twenties, the credibility of the German mark was low, the banking sector had not yet recovered from the war, and the country was going through a period of hyperinflation at that time. To rectify the situation and put the German economy on its feet, local firms and municipalities turned to the States for short-term loans.

The economic crisis, launched in October 1929 in the United States, hit hard on the Germans, who did not manage to reduce their dependence on American loans.

In the early years of the Great Depression, America's economic growth contracted by 31%. US industrial production plummeted by nearly 50% and agricultural prices plunged 53%.

In the early 1930s, America experienced two banking panics - depositors rushed to withdraw deposits en masse, and most financial institutions were forced to stop lending. Then bank bankruptcies began, due to which depositors lost $ 2 billion. Since 1929, the money supply at par has declined by 31%. Against the background of the depressing state of the national economy, incomes of the population were rapidly falling, a third of working Americans became unemployed. Citizens had no choice but to go out to rallies. The most resonant demonstration was the so-called "hunger march" in Detroit in 1932, when the unemployed employees of the Ford plant expressed their discontent. Henry Ford's police and private guards opened fire on the protesters, killing four people and injuring more than sixty workers.

Roosevelt's New Deal

The reanimation of the American economy began after Theodore Roosevelt became the leader of the country in March 1933, who managed to turn the depression into an upswing. The turning point was achieved thanks to the "strong hand" policy. The new president chose the path of fundamental intervention and state regulation of the processes. To stabilize the monetary system, a violent devaluation of the dollar was carried out, banks were temporarily closed (then, when they reopened, they were helped with loans). The activities of large industrial enterprises were regulated practically at the planned level - with product quotas, the establishment of sales markets, and prescriptions for wage levels. In addition, the dry law was canceled, due to which the government received serious profits in the form of excise taxes.

Resources from production were redistributed towards infrastructure. This was especially true of the country's agricultural regions, which are historically the poorest. In the fight against unemployment, millions of Americans were sent to build dams, highways, railways, power lines, bridges and other important facilities. This made it possible to facilitate logistics and transport tasks and gave an additional incentive for business. The pace of housing construction also increased. And the implemented trade union and pension reforms raised the rating of the Roosevelt team among the general population, who were dissatisfied with the initially "shock" by American standards policy, close to socialism.

As a result, by the end of the 30s, the US economy was slowly "getting up from its knees" - with episodic recessions and some shocks, such as the recession of 1937–38. Finally, the Great War helped to defeat the Great Depression - the mobilization of men finished off unemployment, and numerous defense orders filled the treasury with money, due to which the US GDP during the Second World War more than doubled.

Official statements by politicians and economists on the eve of the fall:

1) "In our time, there will be no more landslides." John Maynard Keynes, 1927

2) "I cannot but object to those who claim that we live in a paradise for fools and the prosperity of our country will inevitably decline in the near future." E. Kh. Kh. Simmens, President of the New York Stock Exchange, January 12, 1928.

"There will be no end to our continued prosperity." Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928.

3) “Never before has the United States Congress gathered to consider the state of affairs in the country such a pleasant picture has opened up as it is today. In internal affairs, we see peace and contentment … and the longest period of prosperity in history. In international affairs - peace and goodwill on the basis of mutual understanding. Calvin Coolidge, December 4, 1928.

4) "Perhaps the quotations of securities will go down, but there will be no catastrophe." Irving Fisher, Prominent American Economist, New York Times, September 5, 1929.

5) “Quotations have risen, so to speak, on a wide mountain plateau. It is unlikely that in the near future, or even in general, they may fall by 50 or 60 points, as the bears predict. I think the securities market will rise significantly in the coming months.” Irving Fisher, Ph. D. in Economics, October 17, 1929.

"This drop will not have a significant impact on the economy." Arthur Reynolds, President of the Continental Illinois Bank of Chicago, October 24, 1929.

"Yesterday's fall will not happen again … I am not afraid of such a decline." Arthur A. Lossby (President of Equitable Trust Company), quoted in The New York Times, Friday October 25, 1929.

"We believe that the fundamentals of Wall Street are untouched and those who can afford to pay right away will buy good stock cheaply." Goodboy & Company Bulletin, quoted in The New York Times, Friday, October 25, 1929.

Official statements when the final fall has already begun:

6) “Now is the time to buy stocks. Now is the time to remember the words of J. P. Morgan … that anyone short in America will go broke. Perhaps in a few days there will be bear panic, not bull panic. Most likely, many of the shares that are now selling hysterically will not be such low prices for many years to come. R. W. McNeill, Market Analyst, quoted in The New York Herald Tribune, October 30, 1929.

"Buy reliable, proven stock and you won't regret it." Bulletin E. A. Pierce, quoted in The New York Herald Tribune, October 30, 1929.

"There are also smart people who are now buying shares … If there is no panic, and no one seriously believes in it, the shares will not go lower." R. W. McNeill, financial analyst, October 1929.

7) “Prices for paper are falling, not for real goods and services … Now America is in its eighth year of economic growth. Previous such periods lasted on average eleven years, that is, we still have three years before the collapse. Stuart Chase, American economist and writer, New York Herald Tribune, November 1, 1929.

"The Wall Street hysteria is already over." The Times, November 2, 1929.

“The collapse on Wall Street does not mean that there will be a general, or even a serious economic recession … For six years, American business has devoted a significant part of their attention, their energy and their resources to the speculative game … And now this inappropriate, unnecessary and dangerous adventure is over … The business has returned home to its work, thank God, undamaged, healthier in mind and body, and stronger financially than ever before. Business Week, November 2, 1929.

“… Although stocks have dropped dramatically in value, we believe this fall is temporary, not the start of an economic downturn that will lead to a prolonged depression…” Harvard Economic Society, November 2, 1929.

8) "… we do not believe in a serious recession: according to our forecasts, the economic recovery will begin in the spring, and the situation will get even better in the fall." Harvard Economic Society, November 10, 1929.

"The downturn in the stock market is unlikely to be long; most likely, it will end in a few days." Irving Fisher, Professor of Economics at Yale University, November 14, 1929.

"Panic on Wall Street will have no effect in most cities in our country." Paul Block, President, Blok Newspaper Holding, editorial, November 15, 1929.

"It's safe to say that the financial storm is over." Bernard Baruch, cable to Winston Churchill, November 15, 1929.

9) "I do not see anything threatening or causing pessimism in the current situation … I am sure that the economy will revive in the spring and the country will develop steadily during the coming year." Andrew W. Mellon, U. S. Secretary of the Treasury, December 31, 1929.

"I am convinced that thanks to the measures taken, we have restored confidence." Herbert Hoover, December 1929.

"1930 will be an excellent year for the number of jobs." U. S. Department of Labor, New Years Forecast, December 1929.

10) "Stocks have bright prospects, at least for the immediate future." Irving Fisher, Ph. D. in Economics, early 1930.

11) "… there are indications that the worst phase of the recession is over …" Harvard Economic Society, January 18, 1930.

12) "There is absolutely nothing to worry about now." Andrew Mellon, U. S. Treasury Secretary, February 1930.

13) "In the spring of 1930, a period of serious concern ended … American business is slowly returning to normal levels of prosperity." Julius Burns, President of Hoover's National Conference on Business Studies, March 16, 1930.

"… the prospects are still good …" Harvard Economic Society, March 29, 1930.

14) "… the prospects are favorable …" Harvard Economic Society, April 19, 1930.

15) “Although the disaster only happened six months ago, I am confident that the worst is behind us, and with continued joint efforts, we will quickly overcome the recession. Banks and industry are hardly affected. This danger has also safely passed. Herbert Hoover, President of the United States, May 1, 1930.

"… by May or June, the spring uplift that we predicted in the bulletins for November and December of last year should appear …" Harvard Economic Society, May 17, 1930.

“Gentlemen, you are sixty days late. The depression is over. Herbert Hoover, Response from a Delegation Requesting a Public Works Program to Accelerate Economic Recovery, June 1930.

16) "… chaotic and contradictory business movements must soon give way to continued recovery …" Harvard Economic Society, June 28, 1930.

17) "… the forces of the current depression are already running out …" Harvard Economic Society, August 30, 1930.

18) "We are nearing the end of the fall phase in the process of depression." Harvard Economic Society, November 15, 1930.

19) "At this level, stabilization is quite possible." Harvard Economic Society, October 31, 1931.