The Great Depression was a worldwide economic crisis in the early 20th century that lasted for over a decade. There is no consensus among historians and economists over what exactly caused the event. Instead, it’s widely believed that a variety of factors combined together to form the crisis and its devastating impacts. One of the worst parts of the event was just how high the Great Depression unemployment rate was.
Most people equate the beginning of the Great Depression with the epic stock market collapse in October 1929. In a matter of days investors lost billions of dollars as stock prices took a nose dive.
This event was particularly devastating and had lasting effects in the psyche of Americans. Despite this, economists debate whether this was a “cause” or simply a symptom of larger issues.
One issue historians believe to be a root cause was the tightening of the global money supply. In the lead up to the 1929 stock market crash the Fed began raising interest rates and contracting the money supply. They believe stock prices to be in a bubble, and hoped the tightening of money supply would ease prices out of bubble territory.
However, when the Fed raised interest rates, other nations were forced to follow suit. As most developed economies had returned to the gold standard, to not do so would harm their own economies.1
What resulted was a global tightening of the money supply, which left nations with less tools to use to combat the depression. In addition, Isolationist policies intended to help US industries actually had the opposite effect reducing trade and business revenues.
Unemployment During the Great Depression
Once the depression was evident, the Fed failed to reverse course and loosen the money supply in time. As consumers made a run on banks, thousands failed thus exacerbating the problem. The surviving banks were hesitant to issue loans with economic prospects so dim.
In general, business investment dried up along with consumer spending. The lack of consumer spending led to massive inventories which in turn lowered prices. The resulting deflationary environment spiraled the economy even further downwards. Businesses went bankrupt and were forced to lay people off as unemployment skyrocketed.
The Great Depression unemployment rate reached a peak in 1933 at 24.9%, with 12.83 million workers out of a job. This was a massive increase from the tiny 3.2% unemployment rate in 1929.2
The economy began to crawl back in 1933 after the election of FDR as president. FDR promised a “New Deal” and enacted dozens of programs aimed at restoring the economy and lowering the unemployment rate. Government spending skyrocketed to help create jobs and spur business investment.
Some well known programs today have their roots from the Great Depression such as Social Security. FDR went on to guide the US through the depression and served the most presidential terms in US history.3
Recovering from the Great Depression was not an easy task. Outside factors such as the Dust Bowl in the Midwest made the situation more difficult. In addition, weaning the US economy off the massive government spending proved difficult, as evidenced by the recession of 1937. Unemployment remained at an incredibly high rate of over 10% for over a decade.
Historians generally consider the Great Depression to be the longest and worst economic downturns in US history. Only the outbreak of World War II and subsequent post-war economic boom truly put the crisis in the past.
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To learn more about US history, check out this timeline of the history of the United States.
Sources
1) Mazumder, Sandeep, and John H. Wood. “The Cause of the Great Depression: The Decision to Resume the Gold Standard on Prewar Terms.” The Independent Review, vol. 26, no. 1, 2021, pp. 133–51. JSTOR, https://www.jstor.org/stable/48647342.
2) Margo, Robert A. “Employment and Unemployment in the 1930s.” The Journal of Economic Perspectives, vol. 7, no. 2, 1993, pp. 41–59. JSTOR, http://www.jstor.org/stable/2138199.
3) KEYSSAR, ALEXANDER. “Unemployment Before and After the Great Depression.” Social Research, vol. 54, no. 2, 1987, pp. 201–21. JSTOR, http://www.jstor.org/stable/40970455.
