The crisis of ’29: what it is and when it developed
With the terms “Great Depression”, “Crisis of ’29” or “Wall Street Crash” we refer to the economic crisis that hit the world economy at the end of the 1920s, reducing production, employment, income, wages on a global scale. consumption and savings. The beginning of the Great Depression coincides with the heavy collapse that struck the Wall Street Stock Exchange, identified by many as a signal rather than a cause of the depression, on October 24, 1929 (the so-called Black Thursday) when about 13 million shares were sold causing the index to fall by more than 50 percentage points.
A few days later, Monday October 28 and the following day, Tuesday October 29, remembered as Black Tuesday, America witnessed helplessly the collapse of the New York Stock Exchange with more than 16 million shares changing hands at vertically falling prices.
What were the main causes of the 1929 crisis
Failure to grow in purchasing power despite increased productivity and investment, the Fed’s monetary policy and continued credit expansion through artificially low rates and excess speculative lending are considered among the main causes of the culminating crisis. in the Wall Street crash on October 29, 1929 (-43%).
How did the crisis of ’29 come about?
In the years following the Great War, the United States experienced a real boom thanks to the flourishing automotive industry and high productivity, also due to the rationalization of production processes through the adoption of a scientific organization of work (the so-called Taylorism), which made it possible to keep prices and wages unchanged, favoring investments and therefore productivity.
The existence of accumulated savings and the absence of limits to speculative activities created the conditions for a wide use of credit by investors and led them, together with the banks, to speculate on the stock market. From 1920 to 1929 equity investments tripled their volume and stock market indices rose, from 1926 to 1929, from 100 to 216, but the increase in the value of industrial shares, however, did not correspond to an actual increase in the production and sale of goods.
Speculation was not the only cause of the great collapse, however. Part of the crisis is in fact blamed on the fall in the prices of agricultural products which occurred as a result of the enormous accumulation of stocks left unsold following the improvement in agricultural production in European countries; so tons of wheat and coffee were spilled into the sea or set on fire in an attempt to raise prices. The accumulation of stocks that prevented the heavily indebted farmers from paying interest to the banks on the sums they had borrowed and speculation were therefore among the causes that led to the outbreak of the crisis.
Consequences of the 1929 crisis
The exit from the market through the mass sale of securities, especially by the bourgeoisie that in the early twenties had stimulated the production and consumption of durable goods with their purchases, caused the collapse of Wall Street.
To suffer the consequences were precisely the industries of durable consumer goods such as those of the car that had to cut their orders to companies belonging to the same supply chain, lower wages (with serious damage to consumption) and reduce staff. The contraction in consumption caused by the cut in wages caused the crisis to spread from the industrial sector to the agricultural sector, causing damage to an already severely weakened primary sector.
Since the industrial sector was then linked to the banking sector which kept rates low to encourage investments in the stock market, when, at the time of the Wall Street crash, small savers rushed to lenders to withdraw their money, the market went encountered a liquidity crisis, contributing to the failure of many banks and, in chain, of the industries in which they had invested.
Industrial production dropped by 50% and bankruptcies and layoffs led to the consumer crisis, helping to fuel a vicious circle that brought the US economy to a halt.
What measures were taken in the United States to counter the crisis of ’29
The solutions proposed to counter the great crisis were initially limited to stimulating spending on public works and pressure maneuvers against industrialists in order not to reduce wages, with the creation of corporations in order to support and stabilize sharply falling prices by opposing at the beginning to deflationary measures.
Among the measures taken in the US there was also the contraction of international trade and the adoption of tariffs on products from abroad. President Herbert Hoover then in office did not adopt an assistance program and entrusted everything to federal governments and private assistance.
New Deal: the Roosevelt plan and the recovery from the 1929 Crisis
The revival took place in 1933 with the election of Franklin D. Roosevelt as president of the United States on March 4, 1933. Roosvelt adopted a program of economic and social reforms between 1933 and 1937, known as the New Deal consisting of the following points:
- the abandonment of the gold parity and the devaluation of the dollar by 40% to reduce debts and facilitate exports;
- a vast public works plan to absorb unemployment;
- a complete system of social insurance for the benefit of the working classes and greater taxation of the wealthy;
- an increase in wages;
- the reduction of working hours in factories;
- the obligation for employers to recognize workers’ unions and to negotiate with them;
- control of the banking system, the stock exchange and the stock market.
The dollar devaluation authorized by Congress spurred public spending and the program of economic and social reforms implemented between 1933 and 1937, known as the New Deal, helped to bring the United States out of one of the darkest periods in history. .
By stimulating public spending through a vast program of interventions, Roosvelt managed to employ an unemployed workforce, thus pushing the demand for consumer goods which allowed the production process to be restarted. Roosvelt also supported farmers by controlling production by reducing cultivated land and granting subsidies.
The Tennessee Valley Authority and the NIRA (National Industrial Recovery Act) promoted the creation of large public works, lifeblood for the private sector and the workforce, while the Agricultural Adjustement Act, the Civil Work Administration, as well as the Wagner Act (important recognition of trade unions) were other measures adopted to stop the crisis and restore vitality to a sector oppressed by stagnation.