Black Thursday: The Great Depression of 1929 and the Collapse of the World Economy

In our previous posts, we examined how empires fell, how maps were redrawn at conference tables, and how new superpowers emerged in the Far East. Actually, I had briefly touched upon this dark era when writing about American Culture and Literature in my previous blogs, because this massive collapse in 1929 did bankrupt the economy, as well as it profoundly shaped the spirit and the literary works of the period. However, in this specific blog series, we will leave the literary analysis aside and focus entirely on the historical context.

The 1920s were a golden era for the United States, famously known as the “Roaring Twenties,” a time of jazz music, endless parties, and boundless consumerism. Everyone believed the stock market would go up forever, and people recklessly bought stocks with borrowed money. That is, until that dark day... October 24, 1929, went down in history as “Black Thursday.” In just a few hours, billions of dollars vanished into thin air, banks closed their doors, and the world plunged into an economic crisis of unprecedented scale: The Great Depression

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The roots of the 1929 crash actually lay in the massive destruction left by World War I and the distorted economic order established in its aftermath. Even the European countries that seemed to be the victors of the war were economically exhausted. For instance, Britain, “once the empire on which the sun never sets,” was struggling just to pay the interest on the loans it had taken from America during the war. With its exports melting away day by day, Britain was forced to borrow from the US once again just to survive.

However, the real tragedy was unfolding in defeated Germany. Unable to pay the massive war reparations demanded by the Allies, which the US expected to be repaid in turn, Germany resorted to printing unbacked money. The result was one of the most terrifying hyperinflations in history. The German Mark became so worthless that people started burning stacks of money in their stoves instead of wood just to keep warm.

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The Dawes Plan

Realizing that the total collapse of the European economy would jeopardize its own receivables, America stepped in and proposed the Dawes Plan in 1924. According to this plan, a perfect yet highly dangerous cycle was established: America would provide massive loans to Germany for its reconstruction; once its factories were running, Germany would pay its war reparations to Britain and France; and these countries, in turn, would use that money to pay off their war debts to America.

The system worked wonderfully, but it had a fatal flaw: The entire world’s economy was now dependent on America keeping the financial taps open. If America sneezed, the whole world would catch a cold.

German External Loan, issued 15 October 1924

Black Thursday and the Market Crash

Until the beginning of October 1929, the New York Stock Exchange was living a dream, bringing unprecedented profits to its investors. However, on October 3, 1929, partly due to the reflection of the fragile economic issues America had with Germany and Britain, the stock prices of some giant holding companies, once seen as unshakable pillars of trust, began an unexpected decline.

This minor tremor turned into an avalanche on October 21, when panicked foreign investors rapidly started selling off their shares. And when the calendar turned to Thursday, October 24, 1929, the dreaded moment arrived: On the day forever etched in history as “Black Thursday,” the stock market hit rock bottom. In just a matter of hours, billions of dollars were wiped out, and the life savings of thousands of people turned into absolute nothingness.

As cash literally evaporated from the market, the economy came to a standstill, and people became unable to meet even their most basic food needs. Facing starvation, thousands tried to survive by growing and selling fruits and vegetables in their own yards. The desperation caused by the absence of cash reverted the system centuries back; people resorted to a barter (exchange) economy just to survive. The devastating impacts of the Great Depression brought nations to the brink of bankruptcy and dragged humanity into the darkest depths of poverty, which would persist until the outbreak of World War II triggered a new era of industrial and military mass production.

Crowd gathering on Wall Street after the 1929 crash

Roosevelt and the “New Deal” Era

In the darkest days of the crisis, a political earthquake occurred in America in 1933. Franklin D. Roosevelt came to power promising radical changes to this collapsed economic system and a new pledge, launching his massive project known in history as the “New Deal.” Roosevelt's plan meant breaking a huge taboo for American capitalism. The traditional “laissez-faire” (let them do it) free-market mind-set was set aside, and for the first time, the state intervened in the economy so comprehensively and directly.

To rebuild the public's completely shattered trust, the first major surgery was performed on the banking system. The structure of the Central Bank (FED) was strengthened to regulate the system, and strict laws were passed to prevent banks from making speculative investments. They even introduced state insurance for bank deposits to secure people's money. Roosevelt's statist and interventionist "New Deal" not only saved America from the brink of collapse but also laid the foundations of the modern state concept in the lead-up to World War II. 

In our next post, we will focus on the dark shadows rising from this economic wreckage: The Establishment of Totalitarian Regimes in Europe. We will explore how Mussolini's Fascism in Italy, Hitler’s Nazism in Germany, and Franco’s rise in Spain dragged the world step-by-step toward a devastating second global war. See you then!