Throughout the 1920s, stock prices in the United States were rising rapidly, driven largely by speculative investments. People were borrowing money in order to buy shares and stock in companies, and many believed the market would keep rising forever. The problem was that stock prices became vastly overinflated and disconnected from the actual value of the companies. In addition, unequal wealth distribution between the rich and poor was rife. While some were getting richer, the majority of workers weren’t seeing wages grow at the same pace. Additionally, industries like farming were struggling with overproduction and falling prices. The agricultural industry was hit especially hard by a series of droughts, further damaging the economy. With no regulations, banks were poorly managed and the system was vulnerable to mass withdrawals, which would become a problem when confidence in the market collapsed.
On October 22nd, 1929, also known as Black Tuesday, investors started to realise the market was overvalued. Stock prices began to fall rapidly. A panic began to set in, and many tried to sell their stocks all at once. This led to a market panic, and the New York Stock Exchange had to call in bankers to try to stabilise the situation. Despite their efforts, the market continued to tumble. On October 29th, now known as the infamous Black Tuesday, the stock market completely collapsed. There was an overwhelming wave of selling, with nearly 16 million shares traded. The Dow Jones Industrial Average, a stock market index of prominent companies listed on stock exchanges in the United States, lost 12% of its value on that single day.
This began the Great Depression, a severe and prolonged economic downturn that began in 1929 and lasted through most of the 1930s, becoming the longest and deepest economic depression of the 20th century. It affected not just the United States but many countries around the world, with devastating social, political, and economic consequences. Unemployment reached unforeseen highs, many families lost their homes and political instability was rife.
In the United States, Democrat Candidate Franklin D. Roosevelt introduced the New Deal, a series of programs aimed at providing relief, recovery, and reform. These included public works projects, banking reforms, Social Security, and labour protections. While the New Deal did not end the Great Depression, it helped alleviate some of its worst effects and reshaped the role of government in the economy. Roosevelt is largely considered to be one of the greatest Presidents in US History and fundamentally remodelled the Democratic Party into what it is today.
In the United Kingdom, the Great Depression lead to the rise of Keynesianism, a belief that during times of economic downturn, governments should step in and increase public spending to stimulate demand. This idea became a cornerstone of post-depression economic policy. This was a system that ran strong in the United Kingdom up until 1979 and the radical neoliberalism of Margaret Thatcher.
In Germany, the Depression led to the rise of the Nazi Party, an extremist far right faction that believed that the previous democratic Weimar Government had led Germany to failure, led by Adolf Hitler. He capitalised on the widespread discontent and promised to restore Germany’s economy. He then used state-led economic programmes to reduce unemployment and revive the economy, whilst also putting much of the blame for the crash on the Jews as a scapegoat. As a result, anti-semitism was widespread in Germany, leading to the ultimate acceptance of state sponsored anti-semitism, such as Kristallnacht and eventually the Holocaust. Hitler later went on to start World War 2, which lead to over 70 million people dying.
