The Great Depression, 1929 to 1933: causes and effects

1Two photographs, fifteen months apart

Look at the two photographs below. The first was taken in New York on 29 October 1929; the second in Chicago in February 1931. Between them lies the start of the worst economic crisis of the twentieth century.

Analysing the sources. Source A shows the moment of panic among investors; Source B shows ordinary working men, who may never have owned a share, paying the price. The link between the two is the subject of this lesson: how a collapse in share prices in one city became a depression that threw tens of millions out of work across the world.

2The causes

1. An unbalanced boom. In the 1920s American industry produced more cars, radios and other goods than people could afford, and farmers grew more food than they could sell at a good price. Wealth was very unequally shared, so demand could not keep up.
2. Speculation and easy credit. Millions bought shares with borrowed money, expecting prices to rise for ever. Share prices rose far above what companies were really worth.
3. The crash. On 24 October 1929 ("Black Thursday") prices fell 11% at the opening; after further falls on 28 October, panic peaked on 29 October, "Black Tuesday". Investors who had borrowed to buy shares were ruined.
4. Bank failures. Banks had lent money to speculators and lost it. When savers rushed to withdraw their money, banks collapsed; about 9,000 of the 25,000 American banks failed during the 1930s.
5. The world depended on American loans. Since the Dawes Plan of 1924, American loans had helped Germany pay its reparations. After the crash, American banks stopped lending and called in their loans, and the crisis crossed the Atlantic.
6. Tariffs. To protect their own farmers and firms, the United States passed the Smoot–Hawley Tariff Act in 1930 and other countries replied with tariffs of their own, so world trade collapsed.

Figure 1. From crash to world depression: cause, course and effects.

3The effects

Figure 2. The Depression in three numbers. World trade fell to about a third of its 1929 level.

• Mass unemployment. By 1933 about 25% of American workers were unemployed, and in Germany unemployment rose to nearly 30%. About a third of American farmers lost their land.
• Poverty and hunger, even in rich countries: soup kitchens, homeless camps and families on the move looking for work.
• Political extremism. Desperate voters turned to parties that promised radical solutions. In Germany the Depression helped Hitler's Nazi Party rise from a small party to the largest in the Reichstag by 1932.
• Protectionism and rivalry. Countries raised tariffs and tried to live from their own resources and empires, which increased tension between them.
• Weaker democracies and a weaker League of Nations, since governments turned inward and were less willing to act together.

4Case study: the Depression in colonial Africa

Africa's colonies lived by selling raw materials and crops to Europe and America, so when demand collapsed they were hit hard. In the Belgian Congo, which was joined to Ruanda-Urundi in an administrative union from 1925, the historian Roger Anstey records that the price of groundnuts fell from 125 to 25 centimes and that employment in the Katanga mining region fell by 70%; across the whole colony the number of wage workers fell by about 72,000, and many men returned to their villages. Sisal growers in Kenya and Tanganyika were ruined by low prices. Colonial governments, short of money, still demanded taxes in cash and pushed farmers to grow more export crops. In Rwanda this meant more pressure through the forced labour and compulsory crops, such as coffee, that you studied in Senior 2.

5Discuss

Coffee is still one of Rwanda's main exports. If world coffee prices fell by half tomorrow, who in Rwanda would feel it first, and what could farmers' cooperatives and the government do? Compare your ideas with what happened to colonial Africa in the 1930s.