On the 24th of October 1929 — Black Thursday — the New York Stock Exchange began to collapse. Share prices that had risen steeply through the 1920s plummeted. Panic selling set in. By the end of the following week, over $30 billion of value had evaporated. What followed was a decade of economic suffering that touched almost every country on Earth.
What caused it?
There was no single cause — the Great Depression was a confluence of problems that reinforced each other. The 1920s had seen a speculative bubble: share prices had risen far beyond what company earnings justified, fuelled by easy credit and irrational optimism. When the bubble burst in 1929, investors were wiped out. Banks that had lent money to investors now had bad debts. Banks started failing. As banks failed, ordinary people lost their savings. People stopped spending. Businesses with no customers started laying off workers. Workers with no income stopped buying things. The cycle fed on itself.
🎪 Imagine a circus where everyone has borrowed money to buy tickets because the show is wonderful and they expect to be paid back by selling their ticket to someone else for more. As long as everyone keeps believing in the show, prices stay up. But the moment a few people think the show might not be worth it and try to sell, others panic and sell too. Prices collapse, nobody can repay their loans, and suddenly the circus — and half the town with it — goes bankrupt. That's a financial bubble and crash, just with shares instead of circus tickets.
How bad did it get?
In the United States, unemployment reached 25% by 1933 — one in four workers had no job. Banks across the country failed; the US money supply shrank by a third. In Germany, where the economy was already fragile from post-war reparations, unemployment hit 30%, creating the conditions of desperation and resentment that helped bring Adolf Hitler to power. In Britain, unemployment in industrial areas like South Wales and the north of England reached devastating levels. International trade collapsed by over 65% as countries raised tariffs to protect their own industries, which made everything worse.
How did it end?
Recovery was slow and uneven. In the US, President Franklin Roosevelt's New Deal — a programme of government spending on infrastructure, social programmes, and banking reform — provided relief and stabilised the financial system, though full recovery didn't come until the Second World War, when massive government spending on armaments ended unemployment almost overnight. The war proved that governments could stimulate economies by spending money — a lesson that transformed economic policy. The Great Depression is the reason most developed countries now have unemployment insurance, deposit protection for bank customers, and central banks willing to intervene aggressively in a crisis. The 2008 financial crisis response — bailouts, stimulus spending, quantitative easing — was shaped almost entirely by lessons learned from 1929.
On the 24th of October 1929, something went very wrong with money in America. It was called Black Thursday. A place called the New York Stock Exchange started to fall apart. People buy and sell tiny pieces of companies there. These pieces are called shares. Share prices had been going up for years. Then suddenly they crashed down fast. People panicked and tried to sell everything. By the end of the next week, $30 billion had simply vanished. What came next was ten years of hardship. It hit almost every country in the world.
What caused it?
There was not just one cause. Lots of problems happened together and made each other worse. During the 1920s, share prices had gone up too high. It was like a toy at a school fair being sold for £50 when it only cost £2 to make. The price was not real. Banks had lent people money to buy shares. When prices crashed, people could not pay the banks back. Banks then ran out of money and closed down. Ordinary people lost all their savings. People stopped buying things in shops. Shops had no customers, so they sacked their workers. Workers had no money, so they bought even less. Round and round it went, getting worse each time.
Imagine everyone in your class borrows dinner money to buy football stickers. Everyone believes the stickers will keep going up in price. They plan to sell them later for more money and pay back what they borrowed. It works as long as everyone believes in the stickers. But then a few people think the stickers are not worth it and try to sell. Others panic and sell too. Prices crash. Nobody can pay back what they owe. Soon the whole school is out of pocket. That is what a financial bubble and crash looks like, just with shares instead of stickers.
How bad did it get?
In America, by 1933 one in every four workers had no job at all. Banks failed all over the country. The amount of money in the whole of America shrank by one third. In Germany, things were already hard because of bills the country had to pay after World War One. Unemployment there reached 30 in every 100 workers. So many people were desperate and angry. This helped a dangerous man called Adolf Hitler rise to power. In Britain, places like South Wales and the north of England were hit very badly. World trade also collapsed. Countries tried to protect themselves by charging extra taxes on foreign goods. This actually made everything worse. Trade around the world fell by more than 65 percent.
How did it end?
Getting better took a long time. It also happened differently in different places. In America, a president called Franklin Roosevelt made a plan called the New Deal. The government spent money building roads, bridges, and other big projects. It also fixed the banking system and helped people in need. This made things more stable. But America did not fully recover until World War Two. During the war, the government spent huge amounts of money making weapons. This gave almost everyone a job almost overnight. The war showed that governments can help an economy by spending money. That was a very important lesson. Because of the Great Depression, most countries now have rules to protect people. If you lose your job, you get some money to help you survive. If your bank closes, your savings are protected. Banks also now have a safety net if things go wrong. When a big financial crash happened again in 2008, world leaders remembered 1929. Almost everything they did to fix it came from lessons learned during the Great Depression.