Causes of the Great Depression
Causes of The Great Depression
By: Reed Conforti
The Great Depression was the economic crisis and period of low business activity in the U.S. and other countries throughout the 1930s. There are five main causes of the Great Depression. In 1929, the stock market crashed. This is what is known to be the biggest cause of the financial losses, and it made a major global, social, and economic impact on the world. Throughout the 1930s, there were also bank failures, reduction in purchasing, trouble with American economic policy with Europe, and terrible drought conditions. Each one of these factors contributed significantly to this period of inflation, unemployment, and hunger.
The stock market crash happened on October 29, 1929. This day is also referred to as Black Tuesday. On October 18th, the fall began. People started panicking and began trading their shares. Investment companies and bankers attempted to stabilize the market by purchasing large amounts of stock. This helped for a little while, but on October 29, the market spiraled downward. Stock prices completely collapsed and about 16.5 million shares were traded on the New York Stock Exchange. Billions of investment dollars were lost, which wiped out thousands of investors. This led to major financial struggles and unemployment. Many banks had to close down because investors could not repay loans, or they used the people's money to invest in companies. People rushed to the banks to withdraw and secure their money in the bank. The banks did not have enough money to disperse to all the people and ended up having to shut their doors. Many people lost a lot of money through their banks. By 1933, almost half of the US banks had failed. Many big companies and business owners lost so much money from the crash, they had to fire employees. Unemployment was at 30% of the workforce by 1933.
Throughout the 1930s, over 11,000 of the nations banks had disappeared. Bank deposits were uninsured and as banks failed people lost their savings. The surviving banks were more hesitant to give out loans as well, which led to the decreased spending from the people. There was a run on the nation's banks immediately following the stock market crash of 1929. Overnight, thousands of people began to withdraw their money from the bank. This left the banks with no money to lend, and nobody able to return their loans that the bank had previously given them. Franklin D. Roosevelt ended up announcing a three day banking holiday to stop the run on banks by halting all financial transactions. This saved nearly 1,000 banks and allowed some to open their doors again.
With the stock market crash and the fear of losing more money, people stopped purchasing things. Without people to buy the items, companies had to produce less, which led to more unemployment. Without jobs, people had no income and were unable to continue paying for things that were on a payment plan, which led to those items being repossessed. The unemployment rate rose above 25%, which meant even less spending in order to conserve the money that they had without a steady income.
The Great Depression was a large global event that came mostly from the events in the United States financial policies. It influenced the U.S. Foreign policies to make them become more isolationist. When businesses began to fail, the government made the Smoot-Hawley Tarriff to protect American companies. This charged a high tax for imports on goods which led to less trade between American and foreign countries. In the long run, this saved the US from long lasting devastation in the world. During the U.S. Stock market crash, there was also an economic downturn in Germany and financial difficulties in France and Great Britain. The gold standard, which had served for a long time as the basis for national currencies and their exchange rates, had to be temporarily suspended in order to recover from the costs of the Great War. But the U.S. And European nations tried to reestablish it by the end of the decade. This dedication to the gold standard only made the world economic financial problem worse and hastened the slide into the Great Depression. The U.S. was preoccupied with it's own economic difficulties and did not step in to replace Great Britain as the creditor of last resort after it had dropped off the Gold standard in 1931. The U.S. Soon dropped off the gold standard in 1933 as well.
A drought occurred in the Mississippi valley in 1930 was of such proportions that many could not even pay their taxes or other debts and they had to sell their farms for no profit. This area was nicknamed “The Dust Bowl”. The drought made the Depression worse, especially in the Great Plains. During the depression, the average person living in North Dakota earned only $145 a year compared to a $375 national average. With no rain, farmers struggled to grow crops. No crops meant that there was bare soil being blown around by the wind. Some farmers were forced to give up and move out of the plains to look for better farming conditions. This drought made the depression very hard on farmers. They struggled to produce food for income and for their families.
In conclusion, the Great depression was a major time of social, economic, and global disaster throughout the United States and the rest of the world. It all started with the stock market crash of 1929. This led to bank failures, reduction in purchasing, change in economic policies, and a drought that occurred at the same time. This was a hard time for the people of the U.S. There is not much we could have done to foresee these events, but we can learn from past mistakes.
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2. http://www.history.com/topics/1929-stock-market-crash
3. http://thegreatdepressioncauses.com/great-depression/banks/
4. https://history.state.gov/milestones/1921-1936/great-depression
5. http://www.livinghistoryfarm.org/farminginthe30s/water_01.html