Great Depression

The crisis followed the end of an economic expansion in the United States in 1929. The stock-market crash that autumn damaged confidence and contributed to falling consumption and investment, but it was not the sole cause of the Depression. Economic historians also point to declining demand, a succession of bank panics, failures of monetary policy and the constraints of the international gold standard. These forces reinforced one another: falling output and prices weakened borrowers and banks, while credit contraction further reduced spending. The downturn was most acute in the early 1930s, although its start, depth and recovery differed from country to country.

Although the downturn began in the United States, international financial arrangements helped transmit it abroad. Under the gold standard, governments sought to maintain fixed currency values; many central banks tightened monetary policy as the crisis spread, placing further pressure on production and prices. Falls in lending and international trade added to the strain. The impact was not uniform: the United States and parts of Europe experienced especially deep contractions, while the timing and severity varied elsewhere. Across affected economies, deflation, business failures and unemployment brought severe social hardship.

Governments took different approaches. In the United States, Franklin D. Roosevelt's administration began the New Deal in 1933. Its early measures included banking reforms, emergency assistance, public-work employment and agricultural programs; later laws added, among other measures, protections for organized labor and Social Security. These programs offered relief and altered the federal government's role, but historians distinguish that response from the broader forces of recovery. Monetary expansion after countries left the gold standard helped in several places, and recovery proceeded unevenly. A renewed U.S. downturn in 1937–38 interrupted the rebound; large wartime spending later brought American output and employment back to full levels.

The Depression exposed how bank failures, falling incomes and restrictive monetary systems could amplify an economic downturn across national borders. In the United States, the policy response brought new financial rules and social-insurance programs; in many countries the crisis also strengthened arguments for a more active public role in stabilizing employment and demand. The episode remains a central case study in macroeconomics, while explanations of its causes continue to weigh the relative importance of monetary decisions, banking crises, the gold standard and other factors.