24/11/2025
THE GREAT DEPRESSION (1929–1939)
What it was, why it happened, who was responsible, why policies failed, how Keynes changed everything, and what we learn from it.
1. What Was the Great Depression?
The Great Depression was the deepest global economic collapse in modern history.
It wasn’t a normal recession ... it was a complete breakdown of financial systems, trade, confidence, and policy.
It created:
Massive unemployment (U.S. 25%, Germany 30%)
Bank runs and failures
Collapse of trade
Falling prices (deflation)
Poverty across continents
2. Why Did It Happen? ... The Real Causes
There was no single cause. It was a chain reaction of economic imbalances + policy mistakes + global rigidities.
1. The 1929 Stock Market Crash
Driven by speculation and buying stocks with borrowed money
When the bubble burst → panic selling → wealth destruction
The crash triggered the downturn, but did NOT cause the decade-long depression alone.
2. Banking System Collapse
More than 9,000 banks failed in the U.S.
No deposit insurance → people ran to withdraw savings → banks died → credit evaporated.
A dead banking system = a dead economy.
3. Deflation Spiral
Prices fell sharply. Deflation is dangerous because:
Wages fall
But debts stay fixed
Businesses cut production
Unemployment rises
People save instead of spend
A downward spiral.
4. Smoot–Hawley Tariff (1930)
The U.S. raised import taxes to protect domestic jobs.
Other countries retaliated → global trade collapsed 60%.
This turned a recession into a worldwide disaster.
5. The Gold Standard – The Biggest Structural Mistake
Countries tied their money to gold.
This forced governments to:
Avoid printing money
Raise interest rates
Cut spending
Maintain fixed exchange rates
During crisis, this was su***de.
Countries that abandoned the gold standard earliest recovered fastest.
3. Who Was Responsible?
No single villain, but several major failures:
Investors & Banks
Extreme speculation
High leverage
No reg
