When History Repeats Itself: How the Great Depression Changed the World

A Financial Nightmare Spanning a Decade

From 1929 to the late 1930s, the world economy experienced the most severe recession in history - the Great Depression. This crisis not only destroyed the wealth of millions but also profoundly changed the global financial system and the framework of government policies. The unemployment rate soared to 25%, production came to a halt, trade collapsed, and the entire world fell into an unprecedented economic predicament.

Perfect Storm: Multiple Factors Overlapping

The outbreak of the Great Depression was not due to a single cause, but rather the result of multiple systemic failures.

Asset bubble burst

In the 1920s, speculation was rampant. Stock prices were severely disconnected from actual value, and many investors leveraged their funds to bet on the stock market. On “Black Tuesday” in October 1929, market confidence collapsed, and stock prices plummeted. Millions of investors lost everything overnight, much like the plight of ordinary retail investors in today’s cryptocurrency market during extreme volatility.

Financial System Chain Reaction

Investors are rushing to withdraw their deposits, causing panic among banks. Banks that lack effective regulation and deposit insurance protection are collapsing one after another, leading to a complete breakdown of the financial chain. Credit tightening is making it difficult for businesses to secure financing, and commercial activities have come to a standstill. This systemic risk still exists in today's financial markets.

Rise of Global Trade Protectionism

The United States launched the Smoot-Hawley Tariff Act in an attempt to protect domestic industries, which instead provoked retaliation from various countries. International trade shrank, and the global economy deteriorated further. This provides us with a historical mirror to observe how trade disputes affect asset prices today.

Demand Collapse and Employment Crisis

Consumers are tightening their wallets, and companies are cutting investments and employees. This creates a typical economic recession spiral: declining demand → shrinking production → increasing unemployment → further decline in demand.

Global Catastrophe: Crossing Borders

The Great Depression did not stop at the United States. The European economy was already fragile due to war debts from World War I, and the shock of the American crisis completely shattered hopes for recovery. North America, Europe, and other industrialized countries simultaneously fell into recession, creating a true global financial crisis.

Social and Political Turmoil

Unemployment, poverty, and social division have exacerbated political extremism. Some countries are sliding into dictatorship, and populist forces are rising. The extremely unequal economic conditions have created a breeding ground for the spread of fascism and radical ideologies, which is one of the most dangerous social consequences of the economic crisis.

Industry and Employment Collapse

From retailers to industrial giants, a large number of businesses have shut down. Unemployment has become the norm, with food banks and charitable organizations becoming lifelines. Millions have lost their life savings.

The Road to Recovery: Innovative Policies and External Shocks

A fundamental policy shift is needed to emerge from the Great Depression.

Experiment of the New Policy

The “New Deal” of the Roosevelt administration was a bold experiment in economic intervention. It created jobs through public works, established unemployment insurance and pension systems, and regulated financial markets. Although there were many controversies, these measures did alleviate some of the most severe social hardships.

The government has begun to systematically regulate banks, establishing a deposit insurance system to prevent bank runs. These innovative systems remain core elements of today's financial stability.

The Helplessness of War

During World War II, government military spending surged, industries operated at full speed, and job opportunities exploded. Although the war brought humanitarian disasters, it inadvertently ended the economic crisis. Large-scale military production and infrastructure construction ultimately drove global economic recovery.

Permanent Transition: The Cornerstone of Modern Financial Systems

The deepest legacy left by the Great Depression is institutional innovation:

• Deposit Insurance and Financial Regulation: Preventing the collapse of a single bank from triggering a systemic crisis
• Social Security Network: Unemployment insurance, pension, and other systems are being launched on a large scale for the first time.
• Central Bank Intervention: It has become the norm for governments and central banks to actively manage the economy.
• Market Regulation: The securities market is under stricter supervision.

These mechanisms played a key role in the savings and loan crisis of the 1980s and the financial crisis of 2008, preventing a new round of the Great Depression.

History Illuminates Reality

The Great Depression reminds us that markets can be extremely irrational, and systemic risks can catch us off guard. The swings of investor greed and fear, the chain reactions of policy mistakes, and the deep connections of the global economy—these factors still exist today.

Understanding this history is not just an academic exercise, but also a preparation for future economic shocks. Each financial crisis will re-test the lessons we learned from the Great Depression.