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What were Some of the Causes of the Great Depression?

Many historians point to the stock market crash of 1929 as the cause of the Great Depression.
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  • Written By: Brendan McGuigan
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  • Last Modified Date: 13 August 2014
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The Great Depression was the worst economic crisis in the history of the United States, and brought about one of the worst economic states in the modern history of the world. There is no agreed upon list of causes of the Great Depression, in part because there were simply so many different causes. There was also, and remains, a desire by many groups to lay blame at the feet of other groups, and so many possible causes are strongly contested. Even with that, however, it is possible to find a number of major reasons that at least most people can agree on.

Throughout the 1920s, the United States prospered enormously. Immense wealth was created, but that wealth was distributed extremely unevenly throughout society, both in terms of class disparity, and also between various sectors, such as agricultural laborers and industrial laborers. Although many people are loathe to admit it, it is very likely that one of the major causes of the Great Depression was this disparity in wealth. By 1929, approximately 0.1% of the wealthiest Americans held nearly 35% of all of the savings in the United States, and more than 80% of Americans had absolutely no savings at all.

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The legal structures set up at the time helped to perpetuate this imbalance. Taxes were slashed drastically, with the wealthiest millionaires seeing their tax burden cut down to a third of what it had been at the beginning of the 1920s. At the same time, laws passed that were meant to protect the lower-classes of the United States were knocked down, such as the 1923 ruling by the Supreme Court that a minimum-wage law was in fact unconstitutional.

At the same time, the stock market was climbing higher and higher, and more and more of the wealth begin created was tied to that market. When the stock market crashed in 1929, it set the stage for a massive economic collapse, and was undoubtedly one of the primary causes of the depression. Between the October crash and the end of the year, the stock market lost more than $40 billion US Dollars (USD), heralding the onset of the Great Depression.

As the stock market crashed, so did people’s faith in the economy. One of the big causes of the Great Depression was this lack of trust in the system, which led people to simply stop buying things. As people stopped purchasing, businesses stopped needing to create things, which led them to downsize, which meant unemployment skyrocketed. This massive unemployment was another of the causes, and at its peak more than one-in-four Americans had no job.

In the early-1930s banks in the United States were uninsured, meaning they were left largely to fend on their own in the case of failure. Through the 1930s more than 9,000 individual banks collapsed, and when they collapsed they took people’s savings with them. Without a Federal insurance system in place to protect those assets, large numbers of people lost everything they had. The bank failures also left surviving banks terrified of the future, and so they became less and less likely to lend money. New businesses and individuals were unable to find funds.

As a response to these many causes of the Great Depression, the government passed brutal laws to try to protect American businesses in the international market. Import taxes went through the roof, and foreign countries as a result stopped doing business with the United States, and in many cases actively retaliated against American policy with protectionist policies of their own.

There were other causes as well, from numerous failed policies instituted by the government to try to avert the crisis, to natural disasters like the Mississippi drought of 1930. Together all of these small reasons added up, and the United States slipped further and further into economic tragedy, eventually dragging most of the world down with it.

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Discuss this Article

GreenWeaver
Post 4

Moldova-It seems that times of great governmental intervention have always resulted in the most miserable times for the American people.

During the FDR administration the economy was horrible despite the most governmental interventions we ever had.

The tax rate was 80% similar to when Carter was president, although the tax rate may have been a few points lower. During the Carter years there was actually a misery index because the economic conditions were so horrible.

You would think we would learn a lesson or two about what were the causes of the Great Depression in America.

Moldova
Post 3

Suntan12- It is hard to pinpoint one thing when asked what the main causes of the Great Depression were, but I have to say that raising taxes in this time of economic despair was catastrophic.

In 1932 Hoover raised taxes from 24% to 63% and then FDR raised the tax rate to 79% in 1936. What business would hire anybody at 63% or even 80% tax rate?

Businesses actually laid off people because of the incredible tax rates which put the economy further in decline.

The Great Depression causes and effects were so numerous because the government did everything backward. Instead of cutting taxes and lowering interest rates, both were raised.

This is a double killer for the business community which spells disaster for the American people because where are they going to work?

suntan12
Post 2

Crispety-If I were to write causes of Great Depression Essay, I would not leave out how the Federal Reserve raised interest rates at a time when about 9,000 banks became insolvent.

Banks needed an implosion of cash and needed people to borrow money again, but that actually made Americans think twice about borrowing because it was becoming increasingly more expensive with the rising interest rates.

At least now when we had our banking crisis, the Federal Reserve kept interest rates at record lows in order to encourage people to borrow money which helps the banks.

Crispety
Post 1

The underlying causes of the great depression were many. The Great Depression 1929 saw the market decline to the biggest losses in history.

About 40 billion dollars were wiped out during the crash and many families lost fortunes that they never recovered. At the same times many US banks became insolvent and the wrong policies were instituted that made matters worse.

Many feel what caused Great Depression also involved an anti trade policy that was instituted by Hoover in 1930 which was called the Smoot-Hawley Act which heavily taxed imports.

Many countries hurt by this policy no longer bought US goods which hurt our economy even more.

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