The Great Depression (1929-1939): Causes, Impact, and the New Deal

Beginning with the 1929 stock market collapse, the Great Depression became a worldwide downturn characterized by an almost 90% fall in U.S. stock prices by 1932, roughly 11,000 bank failures by 1933, and unemployment near 25%. The New Deal introduced financial reforms, social programs, and public-works jobs. Full recovery accelerated with U.S. mobilization for World War II, and the crisis permanently expanded federal economic roles.

Overview

The Great Depression began with the U.S. stock market collapse in October 1929 and evolved into a global economic slump that lasted through the 1930s. It remains the deepest and most prolonged economic contraction of the industrialized era. The crisis combined a financial collapse, mass unemployment, and sharp reductions in output and trade.

Financial collapse and bank failures

U.S. stock prices plunged after the 1929 peak. By mid-1932 the Dow Jones Industrial Average had fallen roughly 89 percent from its 1929 high, wiping out large amounts of household and institutional wealth.

The crash severely strained banks. Between 1929 and 1933 thousands of banks failed; by 1933 roughly 11,000 of the nation's 25,000 banks had closed. Bank insolvency and runs on deposits deepened the contraction by reducing credit and consumer confidence.

Economic and social impact

Industrial output collapsed and unemployment surged. Unemployment peaked in 1933 at about 25 percent of the labor force - roughly 12-15 million people - producing widespread hardship, homelessness, and reductions in consumer demand.

The collapse of international credit and protectionist measures, notably the U.S. Smoot-Hawley Tariff of 1930, contributed to a steep fall in world trade and transmitted the downturn to Europe and beyond.

Politics and international consequences

Economic distress reshaped politics at home and abroad. In the United States, public discontent weakened President Herbert Hoover's standing and helped elect Franklin D. Roosevelt in 1932. In Europe, economic instability helped extremist movements gain traction - most notably contributing to the conditions that enabled Adolf Hitler's rise in Germany.

The New Deal and policy responses

Roosevelt's administration launched the New Deal, a broad set of federal programs, regulations, and reforms designed to stabilize finance, provide relief, and promote recovery. Key measures included the Agriculture Adjustment Act (AAA), programs that created public works jobs (for example, the Civilian Conservation Corps and the Works Progress Administration), and major reforms such as the Banking Act of 1933, which established the Federal Deposit Insurance Corporation (FDIC).

The Social Security Act of 1935 created a federal safety net for retirees and certain unemployed workers. The period also saw a shift toward active fiscal policy and greater federal responsibility for economic stability.

Labor activism grew in the 1930s. The Congress of Industrial Organizations (CIO) organized mass-production industries, and the United Auto Workers (UAW) secured recognition from General Motors after the 1936-37 Flint sit-down strike.

End and legacy

The U.S. economy began to recover in the mid-1930s, but full recovery came with the rapid industrial mobilization for World War II after 1941. The Depression permanently altered expectations about government's role in the economy, ushering in financial regulation, social insurance, and fiscal policy as central tools for stabilizing modern economies.