The Great Depression Essay

The Great Depression was the worst economic period in US history.

It lasted roughly a decade: from 1929, the year the stock market crashed, to 1939, when the US started mobilizing for World War II. Industrial production fell by nearly 47% and gross domestic production (GDP) declined by 30%. Almost half of US banks collapsed, stock shares traded at a third of their previous value, and nearly one-quarter of the population was jobless — at a time when unemployment insurance didn't exist.

The "Roaring Twenties" preceded the crash. It marked a period of exorbitant economic growth. Between 1922 and 1929, the gross national product grew at an average annual rate of 4.7%, while the unemployment rate dropped from 6.7% to 3.2%. Total wealth in the

Consumers spent outside of what they could afford, and companies over-produced to keep up with this demand. Financial institutions became heavily involved in stock market speculation. In some cases, they created subsidiaries that offered their own securities. Brokers secretly sold their own stocks — what would be a clear conflict of interest today.

Many investors weren't making choices based on research or fundamentals — they were just gambling that the stock would keep going up. Even worse, many people bought shares on margin, generally needing just 10% of a stock's price to make a purchase (not realizing they'd be on the hook for the whole amount if the price fell). That, in turn, inflated prices, with shares selling for more money than justified by their companies' actual earnings. Still, the stock market stubbornly kept on climbing. That is, until October 1929, when it all came tumbling down.

Prices first crashed on Thursday, Oct. 24, 1929, when the markets opened 11% lower than the previous day. After this "Black Thursday," the market rallied briefly. But prices fell again the following Monday. Many investors couldn't make their margin calls. Wholesale panic set in, leading to more

But it also led to overproduction on the part of many businesses. Even before the crash, they started having to sell goods at a loss. A similar crisis was occurring in agriculture. During World War I, farmers had bought more machinery to boost production — a costly move that put them in debt. But, in the post-war economy, they ended up producing far more supply than consumers needed. Land and crop values plummeted. It all resulted in a drop in prices, both agricultural and industrial, which decimated profits and hurt already over-extended enterprises.

During periods of economic recession, consumers stop spending, which forces companies to cut production. With less output, companies start laying people off, raising the unemployment rate. A healthy unemployment rate in the US hovers between 3% to 5%. During the peak of the Great Depression, the unemployment rate peaked at 24.9% in 1933 — 12.8 million Americans out of a population of 125.6 million — and it was still as high as 17.2% in