By Ramon P. DeGennero, Ph.D., The University of Tennessee, Knoxville
The Great Depression was an event that devastated not just American families and business, but also the lives of people and nations around the world. How did this chapter of history ultimately shape the face of the modern world?

Picture the world if The Great Depression had not occurred. If the economic environment around the world hadn’t been so horrible, then people wouldn’t have clamored for a solution. They wouldn’t have allowed some of the world’s governments’ more extreme attempts to find a remedy.
In times of crisis, though, like during wars, people give their leaders more discretion. War puts the nation’s survival at risk. Aside from massive outbreaks of disease, like the Black Death in the 14th century, the Great Depression was the closest thing to war you’ll find.
Learn more about how the Great Depression became the mother of many of today’s international economic institutions
The Depression in The United States
The numbers all convey a horrible economic catastrophe. The unemployment rate in the United States was just 3.2% in 1929, before the depression. It had soared to 25% by 1933. That actually sounds better than it was because the rate for nonfarm workers was 37%!
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Production of durable manufactured goods fell 36% in 1930 and another 36% in 1931. Total industrial production fell by about half.
The banking system–the institution of banking as we knew it–collapsed. Between 1929 and 1933, 10,763 banks in the United States failed. That’s well over 40% of the 24,970 commercial banks in business before the depression. That’s just the tip of the iceberg.
As trust in the banking system evaporated, people turned to cash instead of holding bank deposits. The money supply fell 31%. International trade dropped by more than two-thirds.

In one important way, the Great Depression is the most transformative period during the twentieth-century in the United States. I know, that’s a big statement in a century that saw two World Wars. I’m not saying the depression was the most dramatic, or the most important, period. But it did transform the role of the federal government in the economy. Few of us can understand how painful, and how long, the economic disaster was.
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Government Intervention
Economic misery often leads to bad government policies, and bad voter decisions. Even Americans, born to freedom and steeped in limited government, with a yellow flag bearing the slogan, “Don’t Tread of Me,” accepted vastly more government intervention in their lives, permanently.
Take the case of Italy after World War I, for example. Italy hadn’t been an economic powerhouse even before the war, and it had suffered serious losses despite being on the winning side. The government wasn’t quite broke, but inflation had taken hold. By 1920, the economy suffered from strikes, high unemployment, and even food shortages.
The fascist government of Benito Mussolini gained power in 1922.

(Image: By Bundesarchiv/Public Domain)
Germany fared even worse. With its industry and population in ruins after World War I, and crushed by the Treaty of Versailles of 1919, the Weimar Republic turned to the printing press to fund government. Inflation was the inevitable result, but no one was prepared for the Great Inflation of the early 1920s.
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In 1918, just 8.9 Reichsmarks were worth one US dollar. By November 1923, just five years later, it took–this is not a mistake–4.2 trillion Reichsmarks to equal a single greenback. The Great Depression essentially opened the door for Adolf Hitler’s Nazi party.
Common Questions About the Great Depression
The cause of the Great Depression is still not fully understood. When the stock market crashed, people rapidly withdrew their finances. This and many policy decisions led to a catastrophe that changed the world.
The Great Depression was largely due to a series of events such as the 1929 Stock Market Crash, very high levels of debt that people had accrued, vast overproduction of consumer goods, and a populace that had lost interest in and the ability to purchase these goods.
The Great Depression is a study on the intermingling effects of government policy making, consumer marketing, the stock market, money and banking, and the pressure of the economy.
The Great Depression ended due to sharp budget cuts and spending during and after the monstrosity of World War II as well as taxes and regulation.