What were three main causes of the 1929 Great Depression?

The Great Depression of October 29th, 1929 marked a period of prolonged and dramatic global economic instability spearheaded by an enormous downturn of the USA economy. But what were the reasons for this collapse? The Tariff War and domestic over-production and under-consumption: Towards the end of the 'Roaring Twenties' (1920 - 1929), there had been a steady decline in American international trade due to President Calvin Coolidge's governmental policy of protectionism, or 'splendid isolationism'. Businesses were failing because of over-production of goods and under-consumption. Banks were refusing to lend money to companies to help them survive because of a lack of confidence in the economy. The cut backs in production led to increased unemployment, which in turn reduced demand for goods and created further unemployment. The tariff war and economic problems in the rest of the world meant America struggled to sell goods to other countries. Decline of traditional industries and agriculture: Unemployment was increasing even before the Wall Street Crash and had reached 1.6 million. Originally it hit workers in the old industries, for example coal mining, textiles, railroads and shipbuilding, but by 1929 it also affected workers in the consumer industries. America had no social security system and the unemployed were expected to be self-reliant. Many were therefore destitute. The number of unemployed rose from 1.6 million in (1929) to 14 million in (1933). As well as traditional manufacturing industry which was hit hard by the tariff war and over-production / under-consumption, the domestic and international markets for agricultural goods tanked during the 20s - many farmers were in enormous debt (due to new machinery costs to increase output) and many could not repay their loans. Stock market speculation and debt: In a bid to maintain the growth of the US economy beyond the 20s, the American government - with its 'laissez-faire' attitude - encouraged the banks and financial institutions to play an active role in the lives of Americans. This was done was through reducing interest rates, with the hope of encouraging citizens and businesses to borrow from banks due to the lower rate of return - raising consumer expenditure in the economy, and consequently stimulating further employment and growth. After interest rates were cut, many US citizens borrowed from banks and speculated on stocks, which they hoped to sell at a higher price at a future time and make pure profit. This led to the stock market and stock prices being inflated with money borrowed from banks, which had been invested by relatively inexperienced players - in September 1929, as the prices of shares continued to superficially rise, experienced investors began selling their shares in large numbers - causing the prices to dramatically drop, causing others to rush to sell their shares. This has been memorialised by 'Black Thursday' (October 29th, 1929) - the day in US history when over 16 million shares was sold at a fraction of their original price, and the economy collapsed. This led to a rapid downward economic spiral as ... businesses lost their share value and folded, stock market speculators lost their savings, banks who had loaned money which was then invested on the stock market could not recoup their losses after shares were made worthless, began claiming private assets and went bankrupt - further causing millions of citizens to lose everything.

Answered by Elliot J. History tutor

1493 Views

See similar History GCSE tutors

Related History GCSE answers

All answers ▸

How do I evaluate a source?


To what extent was Mao's rise to power explained by the communist ideology?


How should I structure my higher mark answers during a GCSE history exam?


Why did the Nazis appeal to the German voters?


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2024

Terms & Conditions|Privacy Policy