The Great Depression: How America’s Economy Collapsed

During much of the 1920s, the American economy appeared unstoppable. Businesses expanded, consumers bought automobiles and household products, and stock prices climbed to extraordinary heights.

Then the prosperity collapsed.

Beginning in 1929, the United States entered the Great Depression, the most severe economic crisis in modern American history. Banks failed, businesses closed, unemployment soared, and millions of families struggled to survive.

The Boom Before the Collapse

The Great Depression did not have a single cause.

During the 1920s, Americans increasingly purchased goods on credit. Businesses produced enormous quantities of products, but wages and purchasing power did not always grow fast enough to keep pace.

Agriculture was already struggling. Farmers had expanded production during World War I, but falling demand afterward pushed crop prices downward and left many farmers deeply in debt.

Meanwhile, enthusiasm for the stock market grew.

Many investors purchased stocks "on margin," borrowing money to buy shares. As prices continued rising, speculation helped create the belief that the market would keep climbing.

The Stock Market Crashes

Confidence began to disappear in the fall of 1929.

Stock prices fell sharply in late October. On October 29, a day remembered as Black Tuesday, investors rushed to sell millions of shares as the market plunged.

Fortunes disappeared, but the crash alone did not cause the Great Depression.

It intensified weaknesses that were already present throughout the economy.

Businesses faced declining demand and reduced production. Companies laid off workers, leaving families with even less money to spend. That decline in spending placed additional pressure on businesses.

The crisis fed on itself.

Banks Begin to Fail

Bank failures made conditions even worse.

At the time, bank deposits were not protected by federal deposit insurance. When frightened customers rushed to withdraw their savings, many banks could not provide everyone with their money.

Thousands of banks eventually failed during the Depression, and many Americans lost their savings.

Credit became harder to obtain, further limiting business investment and consumer spending.

Unemployment Changes Everyday Life

By 1933, unemployment had reached roughly 25 percent of the American workforce.

Families who had once lived comfortably suddenly struggled to pay rent or mortgages. Breadlines and soup kitchens provided meals to people who could no longer afford enough food.

Makeshift communities known as "Hoovervilles" appeared in and around cities.

Rural Americans faced additional hardship. Severe drought and destructive farming practices contributed to the Dust Bowl across parts of the Great Plains, forcing many families to leave their farms.

America Searches for a Recovery

The Depression changed American politics as well as the economy.

Voters elected Franklin D. Roosevelt president in 1932. After taking office, Roosevelt launched a collection of programs and reforms known as the New Deal.

These efforts sought to provide relief, encourage economic recovery, and reform parts of the financial system.

The Great Depression did not disappear quickly, but it permanently changed Americans' expectations of government and reshaped the nation's financial institutions.

The economic collapse showed how deeply banks, businesses, workers, farmers, and consumers were connected. When confidence and spending disappeared, the consequences reached nearly every part of American life.