The Great Depression: how a brief look at the disaster changed the economy forever

Why is this story still relevant?

The Great Depression represents one of the most destructive global economic disasters — a period from 1929 to the end of the 1930s, when millions of people lost their jobs, homes, and hope. It is not just a historical fact, but an important lesson about the fragility of financial systems and the interconnectedness of the global economy. Events from a century ago continue to influence modern approaches to market regulation and social protection.

What led to the crash of 1929?

Exchange Frenzy and Crash

It all started with the uncontrolled growth of speculation in the stock market. Throughout the 1920s, investors profited from stocks, often borrowing money to purchase securities. Asset prices were artificially inflated, detached from the real value of companies. In October 1929 — on the infamous “Black Tuesday” — this bubble burst. In just a few hours, stock values plummeted by tens of percent, and millions of Americans lost their savings overnight.

The banking system is in panic

The loss of trust in finances led to mass withdrawals of deposits. People, frightened by the market crash, rushed to take their money out of banks. Waves of bank failures swept across the country — when the demand for cash exceeded the capacity of banks, many institutions closed down. Without a deposit insurance system, without reliable oversight, thousands of families lost all their savings. This created a vicious cycle: bank closures meant a lack of credit for businesses, which led to a reduction in production and layoffs.

Global Chain Reaction

The crisis quickly crossed the Atlantic. European economies, already weakened by the costs of World War I, faced a contraction in export markets. Protectionist measures, such as the Smoot-Hawley Tariff of 1930, were intended to protect domestic producers but provoked retaliatory actions from other countries. The result: global trade volumes collapsed, and economic collapse engulfed the planet.

Social Damage: Numbers and Reality

During the height of the crisis, unemployment in some countries reached 25%. This meant that every fourth working-age person was without a job and income. The streets of cities were filled with unemployed people, families lost their homes, and bread lines and charitable soup kitchens became symbols of the era. Thousands of companies—from retail stores to industrial giants—closed down. The agricultural sector faced a particular crisis, as the drop in demand led to a catastrophic decline in product prices.

Social upheavals have triggered political instability. In some countries, this has strengthened extremist movements, while in others, power changes have occurred. Democracies have implemented reforms, while authoritarian regimes have used the crisis to consolidate control.

The Path from Hell: How the Economy Started to Recover

State intervention and new approaches

Traditional methods of economic policy were not helping. Then governments, especially in the U.S., tried a radically new approach. President Franklin D. Roosevelt launched a reform and investment program called the “New Deal.” The government directly funded public works, creating jobs. At the same time, strict mechanisms for regulating banks and the stock market were introduced to prevent future speculation.

Following the example of the USA, many developed countries have implemented unemployment insurance systems, pension provision, and other forms of social protection. These were revolutionary changes in the role of the state in the economy.

The Second World War as an economic stimulus

Paradoxically, the armed conflict has become a catalyst for recovery. The governments of all warring countries sharply increased investments in the defense industry, the production of tanks, planes, and ammunition. This created a huge demand for labor, materials, and services. The economy revived, unemployment decreased, and production returned to pre-war levels and above. In many countries, it was military production that ended the Great Depression.

Long-term Lessons for the Modern Economy

The Great Depression permanently changed the way governments approach economic management. The reforms implemented in response to the crisis remain in effect:

• Deposit insurance: now people are protected from total loss of savings in the event of a bank failure.
• Regulation of financial markets: rules have been introduced to limit speculation and require transparency.
• Social guarantees: unemployment assistance systems, pensions, and other social protection mechanisms
• Macroeconomic policy: governments have learned to use fiscal tools to stabilize the economy

Although there have been enormous changes in financial technologies, global trade, and the structure of the economy since the 1930s, the main conclusion remains unchanged: the global economy requires constant monitoring, sensible regulation, and readiness of states for emergency measures in critical moments.

The history of the Great Depression shows how quickly a system that seemed stable and prosperous can collapse if the balance between speculation and the real economy is disrupted. This serves as a reminder of the need for vigilance and caution in managing global finances.