How the economic crisis of 1929 changed the world

Introductory Background

When we talk about historic economic disasters, we cannot ignore the Great Depression – a period that began in 1929 and completely changed the way governments manage the world economy. This economic crisis was not just a number in history, but a living reality for millions of people who lost their savings, homes, and hopes.

The question is not just what happened, but why it took so long and what lessons we learned.

Domino effect: How the fall began

Everything happened in October 1929 when the American stock market crashed on what is known as Black Tuesday. But it was not by chance – during the 1920s, there was uncontrolled speculation on the exchanges, stock prices were inflated, and when investors (many with borrowed money) sensed danger, everyone wanted to sell off at once.

The result? A total collapse of trust. American citizens lost everything overnight. Then the spillover spread to the banks.

Banking crisis as an amplifier

When panic withdrawals from banks began to spread, financial institutions started to collapse like houses of cards. Without serious insurance or government oversight, entire communities found themselves without their savings. The banking sector collapsed, credit lines dried up, and this affected every industry.

Breweries, factories, shops – everyone needed money to operate. Without it, the economy simply came to a halt.

The global economic crisis has spread

It is not just an American problem – the economic crisis quickly spread globally. Europe, already weakened by the First World War, found itself without markets for its goods. Governments began to panic – they imposed tariffs and barriers to protect domestic industries.

Example? The Tariff Act of 1930 in the USA. But it triggered retaliation abroad and global trade collapsed. While each country wanted to protect itself, collectively it destroyed everyone.

What happened to the people?

Unemployment without a cross

In some countries, unemployment reached 25%. Families could not afford bread. The number of homeless people rose exponentially, and soup kitchens became a common part of the cities.

The collapse of economies in miniature

Thousands of companies have gone bankrupt – from small shops to industrial giants. When demand falls, everyone collapses.

Political earthquake

The adverse economic conditions contributed to social tension and political changes. Some countries have plunged into authoritarian regimes, while others have implemented reforms.

How did the economy restart?

New Deal: An American attempt to save

President Franklin D. Roosevelt came up with the New Deal – an ambitious package of measures aimed at creating jobs, stimulating demand, and restoring confidence in the financial sector. The scope was vast: public works, regulation of banks, and the stock exchange.

Many countries have followed a similar pattern – they have introduced unemployment insurance, pension plans, and social benefits.

The Second World War as economic “therapy”

Paradoxically, the war helped the economy. Governments had to pump resources into industry and infrastructure. Production and jobs got back on track. It is not a suitable example, but it worked numerically.

Permanent Changes: How We Didn't Forget

The Great Depression had a long-term impact. Governments implemented:

• Deposit insurance to protect savings
• Regulation of securities
• Social Security Programs
• More interventionist approach to economic management

Policy makers have learned one thing: no matter how stable the economy seems, it is fragile. Governments are now responsible for protecting their citizens from similar collapses.

What does it tell us today?

When we look back at the economic crisis of the 1930s, we see that history has taught us important lessons. Financial markets need oversight, the economy needs certain safety nets, and governments must be prepared to act to prevent similar scenarios from recurring.

Today's leaders and economists still draw from these insights when tackling economic challenges.