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Causes of The Great Depression

Causes of The Great Depression

The Great Depression was the worst economic decline in the history of the United States, with a disastrous impact on the rest of the world. There are certain causes for this economic depression. Read on to know more about the causes of the Great Depression.
Historyplex Staff
The Great Depression was one of the most important events in the economic history of the United States. This depression started in late 1929 and lasted for almost a decade. The effects of the Great Depression were seen throughout the world. Most industrialized nations were badly hit by this economic depression. Many factors contributed in causing the Great Depression. However, one of the main reasons behind the Great Depression was a combination of a highly unequal distribution of wealth in 1920s, and the extensive stock market speculation that occurred during the late 1920s. Money was distributed disparately between the middle-class and the rich, between agriculture and industry within the United States and between Europe and the U.S. This unbalanced wealth distribution created an unstable economy. The stock market was artificially kept high due to the excessive speculation in the late 1920s. However, it eventually led to huge market crashes. These market crashes along with misdistribution of wealth resulted in the economical depression in America.

Great Depression: Causes
  • Stock Market Crash of 1929: The stock market crash took place on Black Tuesday, October 29, 1929. It was one of the major causes that led to the Great Depression. Two months after the original crash, the stockholders had lost more than 40 billion dollars. By the end of 1930s, the stock market started to regain some of its losses. However, it was not sufficient and America was in the state of the Great Depression. This situation was worsened by firming of money rates to the commercial interests.
  • Bank Failures: Throughout the 1930s, a huge bank failure took place and more than 9,000 banks failed. Most bank deposits were uninsured. As a result, a number of people lost their savings due to the bank failures. Because of uncertain economic situation and problems of bank survival, people were not willing to go for new loans.
  • Reduction in Purchasing Across the Board: With the stock market crash and fears of economic woes, people from all classes stopped purchasing any items and avoided expenditures. As a result, production of a number of items was decreased. It ultimately resulted in a reduction in the workforce. As numerous people lost their jobs, they were unable to pay for the items they had bought on installment plans. As a result, their items were repossessed. There was an accumulation of more inventories. About 25% of people were unemployed.
  • American Economic Policy with Europe: As the businesses begin to fail, the government created the Hawley-Smoot Tariff in the year 1930 in order to help protect the American companies. A higher tax was charged for the imports, leading to a reduced trade between the U.S. and the foreign countries.
  • Drought Conditions: The drought that occurred in the Mississippi Valley in 1930 is also regarded as one of the major causes of the Great Depression (though not a direct cause). As a result, several people were not able to pay their taxes due to other debts. Therefore, they had to sell their farms without gaining any profit. They moved to the cities in search of jobs. Many farmers lived on charity, along with their families.
The Great Depression affected not only the American economy, but also the economy of entire world. I hope the above information was of help to you.
Drought Conditions on market
American Economic Policy with Europe
Reduction in Purchasing
Bank Failures
Stock Market Crash