How did the Great Depression Actually Happen? - Explained in 11 Minutes

The Roaring Twenties brought about an era of bootleggers, flappers, swingin' jazz, and economic prosperity. But what would follow a rise other than a dramatic and crushing fall? At the start of 1928, the end of the Roaring Twenties, the economy in the United States was sitting pretty, with further progress on every horizon. Wall Street admittedly saw a minor stock market crash in the spring, but things quickly balanced back out, and people were happily ignoring any further signs of trouble to come. By the fall, however, the market seemed to have reached its peak, and started the downhill journey. With mass numbers of the American population having increasingly been investing in the stock market, some people were finally starting to pay a bit more attention to the falling and volatile prices. Stocks were being sold at a faster pace now, and October brought about Black Thursday on the 24th, the day that the market crashed by 11%, and Americans frantically hoped to sell what they had while they still could. Over the following days, the market continued to plummet, and panic was on a chaotic rise. Monday, October 28th, would see a 12% drop, and the next day, Black Tuesday, would mimic the Thursday before. Americans were losing money by the millions, and trust in Wall Street was all but non-existent. Corporate and private wealth was affected by the ongoing crisis, which sent the American economy off the rails. Now, however, many economists and historians look beyond the chaos of Wall Street itself, and point the finger at what the Federal Reserve did before the actual crash. It was the Federal Reserve, less than two decades young, that had cut required reserves to only 3%, and permitted massive monetary expansion over the roaring 20s. Experts say that it was these actions that caused inflation, and the eventual crash of the stock market, which the Fed reacted to by cutting the money supply, and essentially dooming banks across the country. Thus, when the winter of 1930 triggered a new wave of hysteria and startling bank runs, hundreds of American banks proved unable to pay out, and miserably collapsed. The U.S. government was hesitant to react, as President Herbert Hoover believed in minimal government intervention, and felt that the situation could resolve itself. This stance would hold until the following year, but Congress had other plans. In fact, Congress had already reacted. On June 17th, the Smoot-Hawley Tariff Act had been passed, with a goal of protecting the United States economy by imposing colossal duties on over 800 foreign products. This decision by Congress would prove to be one of the most catastrophic attempts at stunting the Depression, and quite frankly, only accelerated it. Dozens of countries already affected by the consequences of America's economic collapse seeping out from its own borders chose to retaliate, working with the American tariffs to effectively slash foreign imports and exports in the United States. As the Depression was only worsening now, Herbert Hoover finally chose to react, seeing that the situation wouldn't be turning itself around any time soon. President Hoover subsequently made multiple decisions that he believed would put the economy on a better track, such as implementing increased taxes and increasing federal spending by nearly 50%, which also brought about the creation of the Reconstruction Finance Corporation, this being meant to provide loans to struggling banks. Hoover was hoping to give the economy a bit of a kickstart and the stability to keep prices high, which in turn would keep wages from dropping. But this meant little to the 15 million or so unemployed Americans and the growing thousands of closed banks across the country. People were growing hungry, homeless, and angry with their government's failures. It then comes as no surprise that when the next presidential election rolled around, a new face was elected to solve In 1933, Franklin Delano Roosevelt won the presidential election in a landslide. Franklin Roosevelt, dubbed FDR, had run his campaign on promises to provide aid for the impoverished American people and find a new solution for the nation to crawl its way triumphantly out of the Great Depression. His inaugural address after the sweeping election victory would become widely remembered for his famous quote, The only thing we have to fear is fear itself. And it was this attitude that would follow him throughout his efforts to recover the economy and public trust. FDR's calm and in-control attitude would serve a much-needed purpose during a time of such panic, and he would utilize this fact through his live radio talks that would become known as his fireside chats. His goal with these talks was to keep the American public in the loop on everything that he and Congress were up to and how they planned to act. Particularly, there was an important focus on Roosevelt's New Deal. The New Deal was a string of domestic policies and programs with which the president promised to take a method and try it, if it fails, admit it frankly, and try another. It was a reassurance to the American people that something was going to be done, and things would keep being done until the problem was solved. But this required a drastic increase in government interference, which some today still view as problematic. Nevertheless, it was what FDR opted to do. In the initial period deemed the first hundred days, Congress got to quick work passing new laws and programs including the Federal Emergency Relief Act, the Agricultural Adjustment Act, the Securities and Exchange Commission, the Civilian Conservation Corps, and the National Recovery Act, amusingly shortened to the NRA. These actions were focused on boosting the economy by supporting programs for the poor, providing government subsidies to farmers as a way of increasing prices, regulating the stock market, providing more young workers with government jobs, and controlling prices, wages, and unions. These moves seemed promising, but they were only the start of FDR's ambitious plans. Later efforts in the second wave of the New Deal would include the Wagner Labor Relations Act, the Fair Labor Standards Act, the Work Progress Administration, and famously, the Social Security Act. With these acts mainly focused on getting the workforce back out there and protecting the employed, the Roosevelt administration was both pushing to a better economy whilst also aiding the American people in doing their part. The problem with this New Deal, however, was that the Supreme Court often opposed it. By 1937, FDR was growing fed up with the resistance to his ideas, and he looked to fix that by packing the Supreme Court. This faulty conclusion turned much of the public against Roosevelt, and Congress proved unable to make it happen. Regardless, many economic historians doubt that Roosevelt would have resolved the Depression anyway, even if the opposition to his ideas had been dealt with. Some go as far to say that FDR did no better than Hoover. He simply made the same changes on a larger scale. One big difference, however, was the move by FDR to remove the United States from the gold standard, which thus far had impacted the economic downfall by slowing export demands. Still, one study by economists at the University of California found that Roosevelt's New Deal actually lengthened the Great Depression by nearly a decade. However, many will heatedly debate that it was FDR and the New Deal that actually put an end to the country's economic woes, and quite a few economists are part of this group. Whether the New Deal thus worsened or ended the Depression is not known for a fact even today, but one thing that numerous agree was the final boost America needed to get out. That was World War II. If the GDP and lowered unemployment are to be the metric, it's asserted that the Great Depression had come to a complete end by 1942. Unemployment, though, is a bit tricky to judge when 16 million Americans were suddenly called upon to fight in the global warfare. So, while international trade and certain demands saw an increase throughout the fight, private sector production dropped by around 50%, taxes spiked, and the general quality of life was on a decline. It really wasn't until after the Second World War concluded that a true light at the end of the tunnel could be seen and reached. But this nevertheless leads many to credit the war for the resolution. Even today, we can't pin down one specific act or event that ended America's greatest economic collapse. We also can't say for certain what caused it. The stock market crash, Smoot-Hawley tariffs, and even the gold standard can be attributed as having an effect on the downhill sprints the U.S. economy took towards the Depression. But it's not possible to blame just one, or even to blame only those factors. Doing so would be no different than claiming that World War II resolved the crisis. It's just not that simple.