There crisis of 1929also known as Great Depression or Wall Street crashis the negative economic situation that began in the United States and then spread throughout Europe, which led millions of people to remain joblessespecially among the young population, i consumption to collapse, the crime to increase and in some countries to favor the advance of totalitarianisms. The crisis began on the Wall Street stock exchangewith the so-called “Black Thursday” of October 24, 1929 in which approximately 13 million shares were sold, but it soon spread toreal economy. To encourage recovery, governments were forced to review their economic policies and increase public intervention in economics. The recovery began in 1933 with the New Deal introduced by Franklin D. Rooseveltbut pre-1929 production levels were only achieved after many years.
The causes of the crisis of ’29, how the Great Depression came about
There are conflicting interpretations regarding the reasons for the 1929 crisis. However, it is certain that the origins of depression can be traced back to economic boom of previous years. In the United States, the 1920s, which went down in history as “Roaring Twenties”, were a period of great prosperity. The country provided loans and capital to many states, had a constantly growing production system and a stock market which guaranteed quick and “effortless” profits. About a million Americans played the stock market, making handsome profits. Suffice it to say that between 1922 and 1929 the stock index (i.e. the weighted average of the value of the shares) of the main US stock exchange, that of Wall Street in New Yorkwent from 63 to 381.17.
The system, however, hid some weaknesses: first of all, the growth in productivity was not compensated by an equivalent growth in purchase power. What’s worse, the stock market was producing “fictitious” wealth: people got rich through mere speculative operations, earning “unreal” money, not “justified” by the production of goods and services.
The Great Wall Street Crash
In the United States, the boom ended in October 1929. The stock market had ballooned and the bubble had to burst. On October 24th, known as Black Thursday on Wall Street, investors began to sell their shares, thus decreasing the value of the securities. Sales and depreciation reached a new peak on October 29, which went down in history as Black Tuesday.
The consequences were dramatic, because the crisis quickly passed from the financial economy to the real economy. Companies were forced to reduce investments and in many cases to close. Those who had invested in the stock market found themselves without capital and reduced consumption, causing the closure of other companies. By 1932 production fell by 46%. Furthermore, the crisis involved the banks: companies could not repay their loans and many credit institutions were forced to close, dragging the businesses they financed into bankruptcy and pushing savers to withdraw their money. The most dramatic consequence of the crisis was the unemployment: Between 1929 and 1932 approximately twelve million Americans were left without work.
The economic crisis in Europe
In the 1920s the world economy was highly interconnected, with the United States leading the way capital providers to other countries. Due to the crises, capital ran out and international trade was reduced, causing very serious consequences. Banks and companies failed throughout Europe, albeit to a different extent depending on the country. The consequences of the depression were particularly serious in Germany and Austria, Countries defeated in the First World War.
The social and political consequences of the 1929 crisis
In the United States, the crisis caused a worsening of living standards and created large pockets of poverty. Furthermore, very serious social problems arose from unemployment, including the increase in unemployment crime and of juvenile deviance. The political system, however, was not questioned, unlike what happened in some European countries.
The most emblematic case was that ofrise of Nazism in Germany. Before the crisis, the Nazi party enjoyed little support (although its votes had been growing since 1928), but the crisis made the population lose its trust in democratic governmentprompting her to offer her support to extremist parties. After 1929 the Nazi Party went through a real boomwhich led him to obtain the relative majority of votes in the November 1932 elections. The crisis was not the only reason for the rise of Nazism, but it certainly favored it to a significant extent.
Roosevelt’s New Deal and the recovery plan
The crisis reached its peak in 1932. Since then a slow recovery almost all over the world, albeit at different rates depending on the country.
In the United States, the president Franklin D. Rooseveltelected in 1932, promoted very bold reforms, which went down in history with the name of New Deal (new course): he abandoned the position of non-intervention of the State in the economy and introduced a public works program.
Roosevelt also released the dollar from the gold standard (or gold standard): until that moment the value of the dollar, like that of all the main currencies in the world, was based on the country’s gold reserves, according to a precise exchange rate; in 1933 the president freed the dollar from gold, with the aim of devalue it and, consequently, stimulate the domestic market and exports. Other New Deal measures regulated the banking system and placed limits on financial speculation.
Even in the rest of the world, governments focused above all on increasing public intervention and abandoning the gold standard. Gradually the economy recoveredbut in many countries pre-1929 levels were only reached after the start of the Second World War.