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What caused The Great Depression in 1929? Analysis of the Major Causes that Lead to the Greatest Economic Destruction

Updated on December 8, 2014
protest against great depression
protest against great depression

What is Great Depression?

The term "great depression" indicates the global economic crisis that was triggered by the collapse of the Stock Exchange on Wall Street in New York in October 1929 and continued during the thirties.

The causes of the crisis are many.

Ford Model T
Ford Model T

The development of the United States


In the twenties, the United States recorded an economic boom almost uninterrupted until 1929. This development was driven by the production of cars, thanks to the adoption of scientific organization of work (Taylorism) and the use of the assembly line by Ford, allowed the mass production. The mass production of automobiles (the famous Model T), made through the assembly line, had marked the increase in productivity and this allowed a significant reduction in prices. The development of the automotive industry then had a positive impact on productive sectors linked to it, such as the oil industry, rubber, steel, infrastructure, etc.. In addition, the electrical industry experienced a period of significant growth,in fact, doubled between 1923 and 1929.

The American national income increased by 23% between 1923 and 1929, while the population, as a result of restrictive immigration laws, increased by only 9% and the workforce by 11%.

The wide availability of capital enabled the U.S. to lend abroad, about three billion dollars between 1925 and 1929, in particular to European countries, of which Germany was the main beneficiary, recovering quickly from the crisis of the postwar period.

people gathered together in front of bank
people gathered together in front of bank
stock market crash graph
stock market crash graph

Stock market crash of 1929

Actually the stock market crash was not the great depression but it was one of the reasons.Due to the continuous increase in the volume of purchases, stock prices became higher and higher, and thus created a boom that led many Americans to invest their money in the stock market. There had been people who had pledged all their savings , encouraged by dishonest and incompetent consultants. At some point, however, has begun to spread the fear that this unexpected growth would end soon. The first signs of the crisis of overproduction that struck the United States due to both the reduced money supply and the reduction of domestic demand and increasing export difficulties, the wave of speculation was oriented to downward, causing the crack immediately. The Reserve Bank , the U.S. central bank, suggested that the banks do not give loan money to stock market investments. And the banks have begun to demand the repayment of foreign loans , while an many people started to withdraw their deposits, causing the collapse of many lending institutions.

All this has contributed to the development of another contraction in the credit market. The sale of shares increased and in October 23, 1929, more than six million shares were traded at ever lower prices. The next day, called the "Black Thursday" , they traded more than double. And the "Black Tuesday" , the 29th, there was the stock market crash: the share price of many large companies such as General Electric, crashed, more than sixteen million shares were traded and their value fell by a further ten billion dollars.

Bank Failures

Over 9000 banks failed at that time. Since the deposits were not insured, people lost all the savings. And the surviving banks stopped giving loans due to the fear of further crisis.

Reduction in purchasing

Due to the stock market crash, people feared further crisis and stopped buying items to save money. This lead to reduction in workforce and unemployment. This further led to inability to pay installments for the already bought products and the items were repossessed.


Production Rate during 1932 @ an Average of 100

Country
Production Rate
USSR
183
Japan
98
Norway
93
Canada
60
Sweden
89
Germany
56
United States
53

Smoot-Hawley Tariff

This law was enacted by U.S government to protect American companies in June 1930. The Smoot-Hawley Tariff Act goal was to increase U.S. farmer protection against agricultural imports. It increased the import taxes by 55% which lead to less trade between America and foreign countries.

The consequences of the Depression in the U.S. and the world

The Great Depression had significant consequences for the U.S. economy and the world economy as a whole.

In the U.S

  • A large number of banks were closed
  • There was deflation and a collapsed real estate prices
  • The reduction of industrial production by 2 times
  • Unemployment has risen to 12 million people Many farmers went bankrupt.

In the UK, the Great Depression helped to revive the economy and an influx of investment in the old industries

France lost positions in global markets Germany as a result of depression came to power

Italy initiated the establishment of fascism and other European countries also were significantly affected by this global crisis. As a result, it can be said that the Great Depression, which began in the United States, has led to the Second World War, the results of which we all know.

Dust bowl disaster
Dust bowl disaster

The "Dust Bowl" Disaster

The term 'Dust Bowl' refers to a series of storms that hit the United States and central Canada between 1931 and 1939 caused by decades of inappropriate farming techniques and lack of crop rotation. During the drought, the soil dried up becoming dust and was blown away eastwards, mostly in large black clouds.On 14 April 1935 , known as the "Black Sunday", there was one of the worst storms in the Dust Bowl, which caused extensive damage, and turned day into night.There were fourteen states affected by the drought.

Thus the farmers were forced to sell their lands without any profit catalyzed the great depression.

Measures to overcome the Great Depression

When the United States entered the Great Depression, President Roosevelt made a number of measures to resolve this crisis, called the "Roosevelt's New Deal." The basic idea of the plan of Roosevelt was state intervention in all areas of life.States were to regulate the production, industrial relations. The aim was to restore the purchasing power of the population. First of all, the government restored the banking system.

In 1933, banks had stopped functioning, and later their number had been reduced by 15%, the volume of bank assets increased by 37%. An important measure to overcome the Great Depression was the organization of public works, organized by the Public Works Administration (PWA) and the administration of civil works. It was simultaneously involved more than 3 million people. The work was focused on the construction of infrastructure and land development. Thus, the measures taken to overcome depression of 1929-1933 proved effective and the U.S. economy began to recover, and the beginning of the Second World War was the impetus for the rapid development of America's economic strength.

The consequences of the Depression in the U.S. and the world

The Great Depression had significant consequences for the U.S. economy and the world economy as a whole.


In the U.S

  • A large number of banks were closed
  • There was deflation and a collapsed real estate prices
  • The reduction of industrial production by 2 times
  • Unemployment has risen to 12 million people Many farmers went bankrupt.

In the UK, the Great Depression helped to revive the economy and an influx of investment in the old industries

France lost positions in global markets Germany as a result of depression came to power

Italy initiated the establishment of fascism and other European countries also were significantly affected by this global crisis.

As a result, it can be said that the Great Depression, which began in the United States, has led to the Second World War, the results of which we all know.

Some movies on Great Depression

Could it happen again?

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Comments

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    • wba108@yahoo.com profile image

      wba108@yahoo.com 3 years ago from upstate, NY

      Smoot Hawley was definitely a disaster, as it struck a death blow to an already anemic economy. The dust bowl certainly didn't help but FDR's administration paid farmers to destroy crops and butcher life stock, in order to raise the price of agricultural products. This all occurred with food shortages and high unemployment.

      I see little proof that the New Deal did anything but prolong the depression. FDR's own agriculture secretary admitted that the New Deal hadn't improved the economy at all. I am convinced that the Great Depression was caused by the actions of the government that attempted to micro- manage the economy.

    • profile image

      Howard Schneider 4 years ago from Parsippany, New Jersey

      Very interesting and informational Hub, Akhildev143. Many different theories have been employed over the years and you have summarized them well.

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