Introduction

Relevance of the Topic

The 1929 Crisis, also known as the Great Depression, was one of the most catastrophic events in the history of the global economic system. Its nature and impact were not limited solely to the United States of America but reverberated worldwide, transforming the economy, politics, and society. Understanding the causes and consequences of this historical event is essential to comprehend the current world, as the lessons learned during that period are still applicable today.

Contextualization

The 1929 Crisis occurred between the two World Wars. The United States was experiencing unprecedented economic growth, emerging as the world's largest industrial and financial power. However, the apparent prosperity concealed deep vulnerabilities in the economic and financial system. When the crisis hit, the effects were devastating, quickly leading to the spread of economic and social collapse on a global scale. Understanding the 1929 Crisis is fundamental to grasp the context that led to World War II, as well as the economic and social policies that were created to prevent similar events in the future.

Theoretical Development

Crisis Components

• Overproduction and Internal Market Exhaustion: In the early 1920s, the United States experienced an industrial boom marked by increasingly high production standards. However, the supply of products exceeded the market demand, leading to inventory growth and price declines, a scenario that would inevitably lead to a crisis.
• Speculation Boom and the 1929 Stock Market Crash: Speculation was a common practice in the 1920s, where people bought stocks with the expectation that their prices would rise, allowing them to sell them at a profit. Over time, stock prices became completely disconnected from their real value, resulting in unsustainable speculation that culminated in the New York Stock Exchange Crash on October 29, 1929.
• Banking Crisis and Bankruptcy: The stock market collapse resulted in the bankruptcy of numerous banks that had invested large sums in stocks that were now worth much less. Without public confidence, many banks had to close their doors, further exacerbating the crisis.

Key Terms

• Economic Depression: An economic depression is a prolonged phase of severe economic contraction, characterized by significant drops in production, employment, and prices, and by financial crises.
• Deflation Specter: Deflation is a general decrease in the prices of goods and services in an economy. In the 1929 Crisis, the specter of deflation greatly exacerbated the situation, as businesses and individuals began to expect prices to fall even further before buying, postponing spending and leading to an even greater decline in demand and prices.

Examples and Cases

• Mass Unemployment: By 1933, unemployment in the US had reached the alarming mark of 25%. Wages also plummeted, leading to a decrease in purchasing power and an even deeper crisis.
• The New Deal: It was a program implemented by President Franklin D. Roosevelt to combat the effects of the Great Depression. It included a wide range of reforms, regulations, and government spending designed to stabilize the American economy.

Detailed Summary

Relevant Points

• Overproduction Economy: The industrial growth of the United States in the early 20th century was a period of overproduction. However, this unbalanced expansion was not sustainable, as demand did not keep pace with production, leading to the crisis.
• Unbridled Speculation: The 1920s saw a financial speculation boom in the stock market. Stock values rose to unsustainable levels, increasingly disconnecting from economic reality. When the bubble burst, the crisis intensified.
• Stock Market Crash: October 29, 1929, known as Black Tuesday, marked the beginning of the crisis. On this day, the stock market collapsed, resulting in the loss of billions of dollars and an unprecedented banking crisis.
• Economic Depression and Unemployment: The stock market collapse initiated a global-scale economic depression, with the US economy shrinking by 50%. This led to a significant increase in unemployment, reaching the shocking rate of 25%.

Conclusions

• Global Interconnection in the Economy: The 1929 Crisis demonstrated the interconnection and interdependence of the global economy. Initially, the crisis hit the United States, but its effects quickly spread worldwide.
• Importance of Financial Regulation: The crisis highlighted the need to carefully regulate and monitor financial activities, especially speculation in the stock market.
• Role of the State in Crisis Management: President Roosevelt's New Deal, a set of progressive and reformist policies, showed the crucial role that the State can play in recovering from an economic crisis.

Exercises

1. Discussion: In your opinion, what was the most crucial factor that led to the 1929 Crisis in the US?
2. Analysis of Causes and Effects: Explain how the Stock Market Crash contributed to the Great Depression and what was the impact of mass unemployment on the society at that time.
3. Comparison with Modern Events: Compare the 1929 Crisis with the Global Financial Crisis of 2008. What similarities and differences do you find between the two events?