The Great Depression
Causes of the Great Depression
The Great Depression happened as one of the most devastating events to occur in American history. Between the period
of 1929 – 1939, thousands of people in the United States found themselves living a life of complete
distress and turmoil. No one suspected that something this catastrophic would develop in the U.S.
The Great Depression had risen from America’s own downfalls.
The Great Depression was caused by a stock market crash, bank failures, reduction in purchasing, international problems, the
uneven distribution of income and the Dust Bowl/drought.
The Stock Market Crash of 1929 is one of the main causes of the Great Depression. With the rising incomes of the wealthiest
Americans, there came a rapid growth in the stock market, especially between 1927 and 1929. The prices of the stocks began
to rise beyond the worth of the shares of the companies they represented. People didn’t mind paying inflated prices;
they believed that the stock prices would continue to rise and then they could sell their stocks at a profit. Many Americans
believed that they could become rich which led them to join the market as well. Millions of Americans bought stocks “on
margin”. Americans felt that if they could sell their stock at a high enough price, they would be able to repay the
loan and make a profit. In the fall of 1929, the confidence that prices would keep rising faltered, then failed. In late October,
the market declined as investors began selling stocks. On the day of the crash, stocks had lost $10 billion to $15 billion
in value. (“Great Depression in the United
States” 1) The Stock Market Crash occurred on Black Tuesday, October 29, 1929. Two months after the crash, stockholders had lost over $40 billion dollars.
Though the stock market began to regain some of its losses, by the end of 1930, it was not enough to prevent the Great Depression.
(Kelly 1) The crash of the Stock Market was just the beginning of the falling economy.
As the country deepened in its economic depression and farmers had less money to spend in towns, banks began to fail
at alarming rates. Throughout the 1930s over 9,000 banks had failed. Bank deposits were uninsured therefore, as banks failed
people lost their savings. Those banks that were still surviving, who were unsure of the economic situation and concerned
for their own downfall, stopped being as willing to create new loans. This exasperated the situation leading to less and less
expenditures. (Kelly 1) The Federal Reserve System also contributed to the
plummet of the economy. The policy contracted money supply by 1/3 from 1930 – 1931. With less money in the economy,
the businessmen couldn’t get loans and faced problems to renew their old loans. (“Causes
of the Great Depression” 1) The failing of banks only led people to lose all their life’s earnings they
had worked so hard to acquire.
After the stock market crash and fears
of future economic despair, Americans began to stop purchasing products. This led to a reduction in the amount of items produced
and further led to a reduction in the work force. As more people became unemployed, Americans could not manage to pay for
the items they had bought through installment plans and their items were repossessed. The unemployment rate rose over 25%
which meant even less spending to help alleviate the economic situation. (Kelly 1) Consumer
debts rose in the 1920s which geared up consumer spending. Americans led themselves into debts, and when price deflations
occurred they were in serious trouble. Income and prices fell dramatically from 20-25%, but debts remained the same amount.
In the face of unpromising profit, investment scenario weakened and banks became more conservative in the wake of bad future
prospects. (“Causes of the Great Depression”
1) With the rise of new innovations, there came only debt and limited prosperity.
International policy also lead the U.S. into the depression,
furthering it’s downfall. The more businesses that began to fail, the more the government knew that they had to find
a way to protect American companies. Their solution was the Hawley – Act Tariff of 1930 which charged a high tax on
imports. This in turn led to less trade between America and
foreign countries along with some economic retaliation. (Kelly 1) This only worsened the
economic situation and the future depression. According to some economists the growing economic intervention made the marker
inept to deal with sudden changes. Many historians and economists also blame the Smoot Hawley Tariff Act of 1932 for aggravating
the depression by trimming down international trade. American exports declined from US $5.2 billion in 1929 to US $1.7 billion
in 1933. (“Causes of the Great Depression” 1) Problems internationally also
contributed to a weakened economy. After the First World War, the US
had become the world’s chief creditor, while European countries struggled to pay war debts and reparations. Many bankers
felt they could not sustain this new role, but they still lent money heavily to European nations. Some European nations, such
as Germany, could not pay back the money they borrowed. These
debts made the international banking structure extremely unstable by the late 1920s. This in turn, made the US
maintain high tariffs on goods that were imported from other countries, and at the same time it was making foreign loans and
trying to export products. Both these things could not be sustained. (“Great Depression
in the United States” 1) The Great Depression evolved not only for internal conflicts, but also many conflicts
that were external.
The portion of income going to the wealthier Americans increased, while other Americans had made only a small portion
of what they made. This was due to two factors: though businesses showed a remarkable gain in productivity during the 1920s,
workers only got a small share of wealth this produced. At the same time, huge cuts were made in the top income – tax
rates. Between 1923 and 1929, manufacturing output per person – hour increases by 32 percent, but workers’ wages
only grew by 8 %. Corporate profits grew by 65 %, and the government let the wealthy keep more of those profits. As a result
of these trends, in 1929 the top .1 percent of American families had a total income equal to that of the bottom 42 percent.
(“Great Depression in the United States” 1) the
development of the installment plans, all classes of people became unemployed and struggled to survive.
The Dust bowl occurred in 1930 in Mississippi. This drought left farmers
without farms and without profit. Many could not pay their taxes or other debts and had to sell their farms for no profit
themselves. (Kelly 1) Effects of the Plains drought sent economic and social ripples throughout
the country. Many people were not able to make a living in drought –stricken regions and were forced to migrate to other
areas in search of new livelihood. (“Drought in the Dust Bowl Years” 1) The drought had brought more hardship
that only contributed to the depression.
Therefore, there are many events that contributed to the Great Depression. The Stock Market crash only allowed people
to lose money they had invested in the market. Bank failures contributed to the loss of life earnings of many Americans. Reduction
in purchasing lessened the amount that companies were making, which, in turn only shut them down. International problems lead
the US economy deeper into the depression. Uneven distribution
only allowed more Americans to suffer from lack of income. The Dust Bowl contributed to the loss of farms and the loss of
profit. The Great Depression happened as a result of these events, and will always be recalled as one of the hardest times
to lived through in American history.
Works Cited
“Causes of the Great Depression.” Learninghaven.com. 2008. 17 May 2008.
<http://www.learninghaven.com/articles/causes_of_the_great_depression.html>
“Drought in the Dust Bowl Years.” NDMC. 2006. 17 May 2008.
<http://www.drought.unl.edu/whatis/dustbowl.htm>
“Great Depression in the United States.” MSN Encarta. 2008. 17 May 2008
<http://encarta.msn.com/encyclopedia_761584403/Great_Depressionin_the_Uni ted_States.html>
Kelly, Michael. “Top 5 Causes of the Great Depression.” About.com 2008. 17 May 2008.
<http://americanhistory.about.com/od/greatdepression/tp/greatdepression.htm>
