The Great Depression: what it was, what caused it and how long it lasted

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The Great Depression was the worst economic slump in the US official records: output, prices and jobs collapsed between 1929 and 1933, and the economy stayed depressed for most of the 1930s. US real GDP fell about 26% from 1929 to 1933, consumer prices fell about 25%, and unemployment reached roughly one worker in four.

It started in the United States and spread around the world. This page sets out the dates, the official figures, the causes economists still debate, and the reforms that came out of it. For how a depression differs from an ordinary downturn, see recession vs depression.

When was the Great Depression, and how long did it last?

The National Bureau of Economic Research, which keeps the official US business cycle dates, places the peak in August 1929 and the trough in March 1933. That contraction lasted 43 months, the longest since the 1873-79 contraction (65 months) and the second longest on the NBER list. The recovery that followed was strong but incomplete, and it broke in a second recession from May 1937 to June 1938 (13 months).

The Federal Reserve's history essay says that return to full output and employment occurred during the Second World War, so the episode ran from 1929 into the early 1940s. So there are two fair answers to "how long did it last": about three and a half years of contraction, or a little over a decade of depressed conditions.

How bad was the Great Depression in numbers?

Annual data from the Bureau of Economic Analysis, published on FRED, show US real GDP falling from about $1,191 billion in 1929 to about $877 billion in 1933 (in chained 2017 dollars), a drop of 26.3%. The consumer price index from the Bureau of Labor Statistics fell 24.6% between the 1929 and 1933 annual averages. Falling prices made every debt harder to repay, because wages and revenues shrank while the dollar amount owed stayed the same.

Unemployment figures for the 1930s are estimates made later, because the government's monthly survey of households only began in 1940. A 2026 review in the BLS Monthly Labor Review notes that the overall unemployment rate reached 25%, and the BLS estimate for 1933 is 12,830,000 people out of work. Private estimates from the period range from about 11.8 million to 14.4 million for the same year. For comparison, the highest monthly rate in the modern series, which starts in 1948, was 14.8% in April 2020 (see the COVID recession).

What caused the Great Depression?

Economists have argued about this for ninety years, and the answer has shifted toward money and banks. Four causes appear in nearly every official account.

Tight money before and during the slump

The Federal Reserve raised interest rates in 1928 and 1929 to cool stock market speculation. Then, as the economy contracted, the money supply fell by nearly 30% between the fall of 1930 and the winter of 1933, and average prices fell by a similar amount. The Fed's history essay describes the ideas that held policymakers back: the "real bills" doctrine, which said the central bank should only supply credit for business needs, and a "liquidationist" view, associated with Treasury Secretary Andrew Mellon, that failing firms and banks should be allowed to fail. The Fed expanded modestly in the spring of 1931 and aggressively in the spring of 1932, after Congress gave it new authority, then reversed course a few months later.

Waves of bank failures

Regional panics in 1930 and 1931 were followed by national and international crises from 1931 to 1933. According to the FDIC, more than 9,000 banks failed in the four years before deposit insurance began. Each failure wiped out deposits and the loans that bank had made, and fear of the next failure made people pull cash out of sound banks too. Our page on bank runs explains how that spiral works.

The gold standard

Under the international gold standard, countries' interest rates and policies were linked. When the US tightened, other countries had to follow or lose gold, so a US recession spread abroad and foreign crises fed back to the US. In October 1931, after the sterling crisis, the New York Fed raised its rate to 3.5% to defend the dollar, a move that Friedman and Schwartz, as quoted by Bernanke in 2002, called "the sharpest rise within so brief a period in the whole history of the System, before or since."

The stock market crash

The October 1929 crash came two months after the recession began. It hit confidence and spending on big purchases, but most economists see it as an accelerant rather than the root cause.

What is the debate over the Federal Reserve's role?

The most influential account comes from Milton Friedman and Anna Schwartz, who argued that the contraction was "a tragic testimonial to the importance of monetary forces": in their account the Fed could have prevented the collapse of the money supply, and bank failures on that scale would not have happened under the arrangements that existed before the Fed was created. In 1983 Ben Bernanke added a second channel in an NBER paper. He argued that the financial disruptions of 1930-33 reduced the efficiency of credit allocation, and that the higher cost and reduced availability of credit depressed demand, which helps explain the unusual length and depth of the Depression.

Bernanke later became a Fed governor and then chair. At a 2002 event marking Friedman's ninetieth birthday, he closed his speech by addressing Friedman and Schwartz directly:

"Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again." (Ben Bernanke, Federal Reserve Board speech, November 8, 2002)

That view shaped how central banks responded to later crises, including the 2008 financial crisis and the 2020 pandemic shock, when the effective federal funds rate fell from 1.58% in February 2020 to 0.05% in April 2020.

How did the government respond?

Most of the lasting reforms came in 1933 and 1934, after President Franklin Roosevelt took office.

• Bank holiday, March 6-9, 1933. Roosevelt closed the banks by proclamation. The Emergency Banking Act passed on March 9 let sound banks reopen, and on March 12 he explained the plan to the public in his first fireside chat.
• FDIC, 1933. Roosevelt signed the Banking Act of 1933 on June 16, 1933, establishing the Federal Deposit Insurance Corporation. Insurance took effect on January 1, 1934, covering $2,500 per depositor. Only nine insured banks failed in 1934, according to the FDIC.
• Glass-Steagall separation. The 1933 act also separated commercial banking from investment banking.
• Securities laws and the SEC, 1933-34. The Securities Act of 1933 required registration of most securities sales, and the Securities Exchange Act, signed on June 6, 1934, created the Securities and Exchange Commission.
• Later laws. The Gold Reserve Act of 1934 and the Banking Act of 1935 completed the main legislative response listed in the Federal Reserve history essay.

Real GDP grew quickly after 1933 and passed its 1929 level in 1936. Then came the 1937-38 recession, with annual real GDP down 3.3% in 1938.

Could a Great Depression happen again?

Nobody can rule out a severe downturn, and we do not make forecasts. What has changed is the toolkit: deposit insurance, a central bank that acts as lender of last resort, and the end of the gold standard remove some of the channels that turned a recession into a depression in the 1930s. The 2020 slump shows the contrast. Unemployment jumped to 14.8% in April 2020 and was back to 3.4% by April 2023, while in the 1930s it stayed high for a decade. Our page what is a recession explains how such dates are set.

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