The most significant economic downturn in American history was the Great Depression, which began with the collapse of the stock market in 1929 and continued through the 1930s.
The 1920s were a time of exceptional growth. New forms of manufacturing accelerated production of goods like the automobile, and new agricultural technology allowed farmers to grow and harvest more crops than ever before. Improvements in transportation made it possible to ship products and food across the country and around the world. Although the economy appeared to be booming, however, Americans were experiencing what is known as an economic bubble.
In 1929, the U.S. stock market crashed, causing people who had invested in stocks to lose their savings. Farmers also faced problems: increased farm production meant that there was more food available than people were able to buy, particularly after the Depression began. Many farmers had taken out loans to pay for new machinery, and some were not able to sell enough of their crops to cover their debt, leading them to lose their farms. Not only that, but a terrible drought began in 1933, and formerly fertile farmland in the center of the United States turned arid in a phenomenon known as the Dust Bowl (University of Cambridge, 2014).
Banks also played a role in the Great Depression. In the early decades of the 20th century, most banks were not the large corporations that we see today—many only had one branch, and they managed a much smaller amount of money. As people defaulted on their loans after the stock market crash, some banks were forced to close. When news of closures spread, people made “runs” on their banks, hoping to withdraw their savings in cash while they could. Without the cash reserves to meet the withdrawals, more banks closed and people lost their savings, amplifying the downturn.
After the 1929 stock market crash, unemployment soared and personal income dropped. People had very little money to spend, so even more companies went out of business. Trade across the entire world slowed as more and more people were unemployed. By 1933, some estimates put the U.S. unemployment rate at almost 25 percent (Margo, 1993).
Agility: Skill Reflect
Many household adaptations in families were undertaken by women. These included a variety of strategies to make ends meet:
Let’s read an excerpt from the oral history of Douglas Fraser, who was in his early teens when the Great Depression began (Fraser, 1992).
Primary Source Excerpt
Type: Oral History
Author: Douglas Fraser
I recall, it’s a story I tell, where I used to go is a place, Tasty Bread, about half a mile away from the house. I used to walk there and get free day-old bread. They used to slice the wrapper so you couldn’t resell it. I think you got it for two cents. We grew a few onions in the yard. My Ma would mix up the onion and the bread.... I can recall that after the Depression was over I said to my Ma, I said, “Well, why don’t you make some of that stuffing and onions and fry it the way you used to. That was good.” And she did and it was lousy, but it shows you that when you’re a little hungry nearly anything tastes good.
Oral histories provide a valuable window into the experience of living during the Great Depression. Take a moment to read the excerpt again, then consider the question below.
With this large-scale government intervention, federal spending rose from 3 percent of the gross domestic product (GDP) in 1929 to just over 10 percent by 1941 (Federal Reserve Bank of St. Louis and U.S. Office of Management and Budget, n.d.). As the 1940s began, the onset of World War II created an urgent need for workers in manufacturing and soldiers in the military. This development helped lead the United States out of the worst economic crisis of the 20th century.
The New Deal was modeled on an economic theory developed by John Maynard Keynes and has come to be known as Keynesian economics. The general theory of Keynesian economics is that when the economy slows down, it is the responsibility of the government to revitalize it. Once the economy is growing again, the government can step back and let the economy grow on its own.
Agricultural Markets and the Great Depression: Lessons From the Past. (2014, May 7). University of Cambridge. www.cam.ac.uk/research/features/agricultural-markets-and-the-great-depression-lessons-from-the-past
Federal Reserve Bank of St. Louis and U.S. Office of Management and Budget. (n.d.) Federal Net Outlays as Percent of Gross Domestic Product. [FYONGDA188S,]. Retrieved September 22, 2020, from FRED, Federal Reserve Bank of St. Louis. www.fred.stlouisfed.org/series/FYONGDA188S
Fraser, Douglas. (1992, December 6). Interview with Douglas Fraser. The Great Depression Interviews, Washington University Digital Gateway. www.digital.wustl.edu/cgi/t/text/text-idx?c=gds;cc=gds;rgn=main;view=text;idno=fra00031.00285.022
Margo, Robert A. (1993). Employment and Unemployment in the 1930s. Journal of Economic Perspectives, 7(2), 41-59. www.pubs.aeaweb.org/doi/pdf/10.1257/jep.7.2.41
Source: Strategic Education, Inc. 2020. Learn from the Past, Prepare for the Future.