What you’ll learn to do: examine the origins of the Great Depression

Figure 1. Wall Street after the stock market crash of 1929.

The prosperous decade leading up to the stock market crash of 1929, with easy access to credit and a culture that encouraged speculation and risk-taking, put into place the conditions for the country’s fall. The stock market, which had been growing for years, began to decline in the summer and early fall of 1929, precipitating a panic that led to a massive stock sell-off in late October. In one month, the market lost close to 40 percent of its value. Although only a small percentage of Americans had invested in the stock market, the crash affected everyone. Banks lost millions and responded by foreclosing on businesses and calling in personal loans, which in turn pressured cash-strapped customers to pay back their debts. As the pressure mounted on individuals, the effects of the crash continued to spread. The state of the international economy, the inequitable income distribution in the United States, and, perhaps most importantly, the contagion effect of panic all contributed to the economy’s downward spiral.

In the immediate aftermath of the crash, the government was confident that the economy would rebound. But several factors led it to worsen instead. One significant issue was the integral role of automobiles and construction in American industry. With the crash, there was no money for either auto purchases or major construction projects; these key industries suffered disproportionately, laying off workers, cutting wages, and reducing benefits. Affluent Americans considered the “deserving poor”—those who lost their money due to no fault of their own—to be especially in need of help. But at the outset of the Great Depression, there were few social safety nets in place to provide them with the necessary relief. While some families retained their wealth and middle-class lifestyle, many more were plunged quite suddenly into poverty and often homelessness. Children dropped out of school, mothers and wives went into domestic service, and the fabric of American society began to unravel.