The Great Depression

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Before the Great Depression, the roaring twenties was a time of great growth for the economy and for the American culture at large. The use of automobiles for convenient transportation was spreading across the country and unemployment was low because of all the new factories. This created a very efficient economy and an optimistic market and during its peak in 1929 stock prices grew by almost ten times.

It is commonly believed that the stock market crash began on October 24, 1929, when the market opened up at eleven percent lower. Institutions countered this by placing high bids on stock to ease the panic and hope the markets would bounce back, and two days later they did. But this happened again on the following Monday, now known as Black Monday. When the market fell another thirteen percent, and again on Black Tuesday falling another twelve percent. And from there the market continued the trend until it hit rock bottom in1932. Many were buying stocks in ratios as high as three to one, meaning they were putting down one dollar of capital for every three dollars of stock they purchased. This creating a very dangerous trend because that would mean a loss of one-third of the value in the stock they purchased would completely wipe them out and they would lose every dime they invested. People were investing so much because they were hoping for the share or dividend payout of the stocks to grow as well.

Late in 1929 the economy began to struggle because of all the excess goods industries were producing. This overproduction eventually led to oversupply in many areas of the market such as farm crops, steel, and iron. In turn companies would have to take a loss on the excess goods, lowering the over-bought and priced shares of the company. By 1932 one of every four Americans were unemployed and many were losing the ability to pay off home loans. People began to withdraw their deposits in fear the bank would collapse and they would lose their savings, this was called a bank run.[2] This was a problem because banks typically only hold a portion of deposits in cash at a time, and loan out the rest to borrowers or they purchase assets that would increase the banks value. During a bank run, the bank must quickly liquidate loans and sell its assets for the minimal value in order to come up with the cash that customers had once deposited. The losses they suffer can threaten the bank’s ability to pay off its debt and return money to those who had deposits at the bank. The trend of bank runs would lead to the collapse of over nine thousand banks across the country.

As a result of bank closures the contraction of the money supply became over whelming. With less money circulating throughout the economy, the purchasing power of consumers was almost nonexistent. In order to compensate for the lack of money on hand by the average consumer, manufacturers lowered the cost of their goods, and in turn they made less money and had to lay off workers.

The combination of over-production of goods, inflation, and banking practices created the perfect storm. It happened relatively quick and devastated the entire economic structure within the Unites States. Government intervention to alleviate the problems did nothing to facilitate the improvement of the economy. Capitalism in America was shaken to the core from fiscal irresponsibility and the banking practices of the time. The destitute could be found in both rural and urban settings. The Great Depression changed our nation as a whole and will never be forgotten.

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