Causes of the Great Depression

1. By John Washington Causes of the Great Depression

2. List of causes • Although the stock market crash was the ultimate cause, many other long and short term causes greatly affected and worsened the Great Depression • Extreme Unequal distribution of wealth • High tariffs and war debts • Overproduction in industry and agriculture • Farm crisis • Buying on credit

3. Unequal Distribution of Wealth • 1% of the richest owned 40% of the wealth of the U.S. • Part of this was due to Warren G. Harding reducing taxes and regulations which allowed monopolies to form • As you can see, from about 1924 to the early 1930’s, the top 1% started controlling more and more

4. High tariffs • After World War 1, European countries owed the United States billions of dollars • In 1922, the U.S. passed the Fordney-Mc Cumber Act which instituted high tariffs • European nations retaliated with high tariffs and world trade declined

5. Overproduction • After World War 1 factories and farms were producing more than was needed • Americans were buying items on credit which got them into debt. The bank took the item if one payment was missed • Debt meant less spending • Workers made too little to buy their own output

6. Continued • It was hard to sell overpriced food and items overseas due to high tariffs • Prices dropped dramatically due to overproduction • Farmers and businesses could not repay their debts which resulted in some bank failures and even more unequal distribution of wealth

7. Farm Crisis • Due to price drops, farmers made so little money • In the early 1930’s, the depression worsened greatly because of the dust bowl, which was caused by severe droughts and producing the same crop over and over • This resulted in a huge decrease of food from the Midwest, previously called the bread basket because of its huge food production

8. Stock Market • Calvin Coolidge’s years marked 5 years of artificial rise in the stock market • The value was overpriced due to speculation • Fraud and illegal activity ran rampant due to lack of regulation and rules • The Stock Market was unregulated so some investors were able to manipulate huge amounts of money to their advantage

9. Continued • On September 3rd, 1929, prices reached an all time high • Market wobbled for several weeks • On Thursday, October 24, known as Black Thursday, many major investors tried to sell their stock, but were unable to find enough buyers due to the high prices • Prices dropped which encouraged more attempted selling

10. Continued • Nearly 13 million shares changed hands, more than 3 times as many as a typical heavy day, and stock values fell more than 8 billion dollars • The next day, buying and selling was still high and President Hoover and newspapers made statements about the stability of the market

11. The Crash • However, Monday, October 28, was another horrible day • Nine million shares changed hands • It now became obvious that the stock market had crashed • Over the next few weeks, stock investors lost over 30 billion dollars • Reports of suicides over lost fortunes were rampant

12. Effect of the Crash • Banks would loan money to buy stocks with Banks with only a 10% down payment • After the crash, many investors and non investors tried to draw out their savings at the same time • Savings accounts were uninsured and did not have the money in cash for the people withdrawing their savings

13. Continued • Thousands of U.S. banks declared bankruptcy and more than 9 million savings accounts were wiped out, dragging the United States into the Great Depression • The crash wiped out many middle class Americans • Unequal distribution of wealth and the middle class getting a severe setback led to poverty for an extremely high percentage of Americans