Causes of the Great Depression Quick Check
There were several causes that are often cited as contributing factors to the Great Depression, including:
1. Stock Market Crash: The most well-known trigger of the Great Depression was the stock market crash of 1929, also referred to as Black Tuesday. It led to a dramatic decline in stock prices, with investors losing billions of dollars.
2. Overproduction and Underconsumption: In the 1920s, there was an excessive and unsustainable level of production in industries such as agriculture, manufacturing, and construction. However, wages did not keep up with the increased productivity, leading to a lack of purchasing power among the general population.
3. Banking Crisis: Many banks failed during the Great Depression, leading to a loss of savings for individuals and businesses. This lack of trust in the banking system further worsened the economic situation.
4. Farming Crisis: The agricultural sector faced significant challenges during the 1920s, including falling crop prices, droughts, and dust storms that caused soil erosion. Many farmers were unable to repay their loans and faced foreclosure.
5. International Trade Issues: Global trade suffered as countries implemented protective tariffs and engaged in trade wars, such as the Smoot-Hawley Tariff Act of 1930. These actions reduced international trade and harmed economies worldwide.
6. Government Policies: The Federal Reserve's tightening of monetary policy contributed to the severity of the Great Depression. Its decision to raise interest rates and restrict the money supply stifled economic growth and led to deflation.
Overall, these factors combined to create a downward spiral of economic activity, leading to unemployment, poverty, and a prolonged economic recession that lasted for nearly a decade.