This page traces the chronological course of the Great Depression in the United States, from the economic conditions of the 1920s through the recovery tied to World War II mobilization. For background on the underlying topic, see Great Depression. For competing causal and policy interpretations, see New Deal Economics - Debate, New Deal - Macroeconomic Effects Debate, and New Deal - Recovery Debate.
The 1920s in the United States, often called the Roaring Twenties, were marked by rapid economic expansion. The nation's total wealth more than doubled between 1920 and 1929. Stock market participation broadened during this period, with investors of varied means buying shares, often on margin. The stock market underwent rapid expansion, reaching its peak in August 1929.
By the summer of 1929, signs of slowing had appeared. Consumer spending slowed and unsold goods began to pile up, which in turn slowed factory production, even as stock prices continued rising into the fall, reaching levels not justified by expected future earnings. The economy began contracting as early as August 1929, months before the stock market crash that October.
The Federal Reserve raised interest rates in 1928 and 1929 in an attempt to curb speculation in securities markets. Economic activity in the United States slowed in the period that followed, and recessions also occurred in other nations participating in the international gold standard, which linked interest rates and monetary policies among member countries. The extent to which Federal Reserve policy caused these outcomes, as opposed to other factors, is disputed; see New Deal - Macroeconomic Effects Debate.
On October 24, 1929, as nervous investors began selling overpriced shares en masse, the stock market crash some had feared finally happened. A record 12.9 million shares traded that day, known as “Black Thursday.” Five days later, on October 29, or Black Tuesday, some 16 million shares traded after another wave of panic swept Wall Street. Millions of shares ended up worthless, and investors who had bought stock “on margin” with borrowed money were wiped out completely. The Dow Jones, which had stood at 191 points in early 1928 and risen to 381 points by the fall of 1929, fell to 230 points on Black Tuesday alone.
The worst of the crisis did not reverberate worldwide until after 1929. Many rural banks began to fail in October 1930 when farmers defaulted on loans. There was no federal deposit insurance at the time, and bank failures were considered a normal part of economic life. Worried depositors withdrew savings, causing the money multiplier to work in reverse; banks called in loans rather than making new ones, shrinking the money supply and contracting the economy.
The crisis reached panic levels again in December 1930, with a run on the Bank of United States, a privately run institution unrelated to the federal government, which failed when it could not pay all its creditors. Among the 608 American banks that closed in November and December 1930, the Bank of United States accounted for a third of the roughly $550 million in deposits lost, and with its closure bank failures reached critical mass.
In June 1930, Congress passed the Smoot-Hawley Tariff Act, which imposed higher tariffs on foreign imports. The average ad valorem rate of duties on dutiable imports, which stood at 25.9 percent for 1921-1925, rose to 50 percent during 1931-1935. Over the following four years, American exports declined from about $5.2 billion in 1929 to $1.7 billion in 1933, with farm commodities such as wheat, cotton, tobacco, and lumber among the most affected. The degree to which the tariff contributed to this decline, relative to monetary and banking factors, is debated; see New Deal Economics - Debate.
Banking panics continued through 1931 and into 1933. These panics caused many banks to fail, decreasing the pool of money available for loans. By the end of 1933, 20 percent of the banks that had existed in 1930 had failed. Industrial production in the United States fell by nearly 47 percent between 1929 and 1933, GDP declined by 30 percent, and unemployment reached more than 20 percent. By the time Franklin D. Roosevelt was inaugurated on March 4, 1933, the banking system had collapsed, nearly 25 percent of the labor force was unemployed, and prices and productivity had fallen to a third of their 1929 levels.
Drought conditions across the Great Plains compounded the agricultural crisis. The Dust Bowl increased the number of farm foreclosures.
President Herbert Hoover responded to the deepening crisis with measures including the Smoot-Hawley Tariff and efforts to support banks and public works, while relying primarily on existing relief structures rather than new direct federal relief programs. Hoover and his successor, Franklin D. Roosevelt, both tried to stimulate the economy through a range of incentives. Hoover's defenders and critics offer differing accounts of his record; see Franklin Roosevelt - Conservative Viewpoint for one related discussion of the period's politics. For the banking events of this period in detail, see Banking Crisis 1933 - History.
Roosevelt took office in March 1933 and launched what became known as the “First Hundred Days,” a period of rapid legislative action. Roosevelt initiated his First Hundred Days of aggressive action intended to pull the country out of the Depression.
Roosevelt's administration created a series of new federal agencies and programs. Roosevelt sought to reform the financial system, creating the Federal Deposit Insurance Corporation to protect depositors' accounts and the Securities and Exchange Commission to regulate the stock market and prevent abuses of the kind that had led to the 1929 crash. Among the New Deal programs and institutions of this period were the Tennessee Valley Authority, which built dams and hydroelectric projects to control flooding and provide electric power to the Tennessee Valley region, and the Works Progress Administration, a jobs program that employed 8.5 million people from 1935 to 1943. The Social Security Act was also signed into law during this period as part of the New Deal. The extent to which these programs drove the economic recovery, as opposed to other factors, is disputed; see New Deal - Recovery Debate.
Unemployment remained high throughout the New Deal years even as the economy showed signs of recovery. 1933 marked the worst point of the Depression from an unemployment standpoint, with joblessness reaching almost 25 percent.
A sharp downturn interrupted the recovery in 1937. Following the 1937 recession, Roosevelt adopted Keynes's notion of expanded deficit spending to stimulate aggregate demand, and in 1938 the Treasury Department designed programs for public housing, slum clearance, railroad construction, and other public works. These initiatives were soon overshadowed by the much larger public spending stimulated by World War II, and even after 1938 private investment in housing, non-residential construction, and plant and equipment continued to lag. The economy began growing again in 1938, but unemployment remained higher than 10 percent until 1941.
Defense-related production began rising in the years before American entry into the war, driven in part by demand from belligerent nations. Britain's wartime purchases were paid for in gold, which stimulated gold inflow into the United States and raised the monetary base, in turn stimulating the American economy to its highest point since the summer of 1929. By the end of 1941, before American entry into the war, defense spending and military mobilization had begun one of the greatest booms in American history, ending the last traces of unemployment.
On November 23, 1941, the Dow closed at 382.74, the first time it had exceeded the 381.7 level set on September 3, 1929.
On December 7, 1941, Japan attacked Pearl Harbor and Congress declared war on Japan. In the resulting mobilization, the economy grew 17.7 percent, unemployment fell to 9.9 percent, and prices rose 9.9 percent, while federal debt grew to $58 billion. Mobilization eventually moved roughly 13 million people into military service.
Unemployment and output returned to and surpassed pre-Depression levels during the mobilization period that followed. The extent to which wartime mobilization, as opposed to New Deal spending, was responsible for the recovery is disputed; see New Deal - Recovery Debate.