161 The Great Depression
30.3: The Great Depression
30.3.1: The Financial Crisis of the 1930s
The Great Depression was the longest, deepest, and most widespread depression of the 20th century, put into motion after the devastating stock market crash in 1929 in the United States known as Black Tuesday.
Learning Objective
Compose a list of factors that contributed to the global depression of the early 1930s
Key Points
- The Great Depression was a global economic depression, the worst by far in the 20th century.
- It began in October 1929 after a decade of massive spending and increased production throughout much of the world after the end of World War I. The American stock market crashed on October 29, which became known as “Black Tuesday.”
- The market lost over $30 billion in two days.
- When stocks plummeted on Black Tuesday, the world noticed immediately, creating a ripple effect on the global economy.
- The gold standard was the primary transmission mechanism of the Great Depression, driving down the currency of even nations with no banking crisis.
- The sooner nations got off the gold standard, the sooner they recovered from the depression.
- In many countries, the negative effects of the Great Depression lasted until the beginning of World War II.
Key Terms
- speculation
- The purchase of an asset (a commodity, goods, or real estate) with the hope that it will become more valuable at a future date. In finance, it is the practice of engaging in risky financial transactions to profit from short-term fluctuations in the market value of a trade-able financial instrument rather than from its underlying financial attributes such as capital gains, dividends, or interest.
- Black Tuesday
- The most devastating stock market crash in the history of the United States, when taking into consideration the full extent and duration of its aftereffects. The crash, which followed the London Stock Exchange’s crash of September, signaled the beginning of the 10-year Great Depression that affected all Western industrialized countries.
- gold standard
- A monetary system in which the standard economic unit of account is based on a fixed quantity of gold.
The Great Depression
The Great Depression was a severe worldwide economic depression during the 1930s. The timing of the Great Depression varied across nations; in most countries it started in 1929 and lasted until the late 1930s. It was the longest, deepest, and most widespread depression of the 20th century. In the 21st century, the Great Depression is commonly used as an example of how far the world’s economy can decline.
The depression originated in the United States after a major fall in stock prices that began around September 4, 1929, and became worldwide news with the stock market crash of October 29, 1929 (known as Black Tuesday). Between 1929 and 1932, worldwide GDP fell by an estimated 15%. By comparison, worldwide GDP fell by less than 1% from 2008 to 2009 during the Great Recession. Some economies st