Causes of the Great Depression
The Great Depression, which began in 1929 and lasted through the 1930s, was a period of severe economic downturn that affected countries worldwide. Several key factors contributed to this catastrophic event.
Stock Market Crash of 1929
- The stock market crash in October 1929 marked the beginning of the Great Depression.
- Speculative investments led to inflated stock prices, and when confidence plummeted, panic selling ensued, causing a dramatic decline in stock values.
Bank Failures
- Thousands of banks failed due to unregulated lending practices and poor investment choices.
- As banks collapsed, people lost their savings, leading to decreased consumer spending and further economic contraction.
Reduction in Consumer Spending
- The crash and subsequent bank failures resulted in widespread unemployment, reducing household income.
- Consumers curtailed spending, leading to decreased demand for goods and services, which further exacerbated the economic decline.
Global Trade Decline
- The imposition of tariffs, such as the Smoot-Hawley Tariff in 1930, raised import duties and led to retaliatory tariffs from other countries.
- This resulted in a significant drop in international trade, worsening the global economic situation.
Monetary Policy Failures
- The Federal Reserve’s tight monetary policy failed to provide adequate liquidity to the economy, making it difficult for businesses to borrow and invest.
- This lack of credit contributed to business failures and rising unemployment.
Overproduction and Underconsumption
- Industries produced more goods than could be consumed, leading to surpluses and falling prices.
- Farmers faced plummeting crop prices, resulting in widespread rural poverty and further decreasing purchasing power.
These interconnected causes created a vicious cycle that ultimately led to one of the most significant economic crises in history.