Causes of The Great Depression
cause and effect chart for the great depression
- Many people mistakenly think that the stock market crash of 1929 is what caused the great depression. Although the stock market crash severely influenced the impact of the great depression, America was already on its way to an economical turmoil. Throughout the 1920's there was a false sense of prosperity. The economy grew too big for itself under false pretenses and was too good to be true. Many Americans spent more money then they could afford due to the installment plan. The "buy now pay later" ended up being the downfall, people would buy now and not have enough money to pay when later came around thus increasing consumer debt. This causing a downward spiral of businesses closing due to the loss of money and the decrease in consumer spending. Even though after the stock market crash of 1929, thousands of banks failed, the banks were failing long before the crash. "In fact, during the 1920s, 600 banks failed each year, on average" (Causes Of The Great Depression).
- Although the 20's was a time of wealth and economical boom, many people made very little money. The average person had a very low income and only 1% of the population made a substantial amount of money.
- In the industry sector, the machine technology was majorly lagging. Companies did not update their machinery so that they could save money. Most industries could not afford to update to the latest technology and could not advance their industry
- The agriculture sector was greatly influenced by the war. During WW1 there was a high demand for food and crops but after the war, Europe was again cheaply importing crops and the demand for local farmers decrease. With the already low demand for crops, the farmers were hit hard by the great depression. Farmers grew an overabundance of food and were forced to lower the prices to compete eventually they ran out of money to keep up their farms.
- Through out this, the government tried to continue trading to keep the budget balanced. The government tried to make sure that it was not spending too much money that we really didn't have.
- The federal government reduced the national money supply because they thought that we were running low on money and they wanted to save as much of it as they could. The government thought that the economy was going to continue rising so it didn't feel the need to continue investing in the economy.
- WW1 may not have effected America that much, but it effected many other countries such as Germany and Britain. At this time, countries had high tariffs on their imports to protect their own industries, but Britain was hit hard by that due to their economy relying on trading but after WW1 40% of their merchant ships were destroyed by German submarines. Germany also was hit hard economically by the war. Germany was in over 33 billion dollars worth of debt by the end of the war.
- The decline in foreign market happened because after WW1 countries started to recover and produce their own goods. They got back on their feet so there was not really a demand for the goods America was overproducing such as guns and ammunition, food, clothing, and household goods. Once other countries were able to stand their ground, they didn't have to rely on America economically.