Many causes helped contribute to making the Great Depression as severe as it was. During the 1920’s, many bank failures, together with low incomes among farmers and factory workers, helped set the stage for the depression. Uneven distribution of income among workers also contributed to the slump. Most economists agreed that the stock market crash of 1929 started the depression. Many Americans purchased stocks because they were certain of the economy. People began selling their stocks at a fast pace, but numerous stock prices dropped to a fraction of their value. For this reason, the banks lent out their money in the expectation that the customer would pay back the money with interest after getting rich. Many factories lost money and went out of business because of this great tragedy. The desperation for work and money became so bad that people were willing to work for as little as was offered just so that they could have enough money for their own survival. They all knew that soon it was a fight for life or death.
Even though during the 1920’s was a prosperous period for business, most of the farmers did not flourish. They were producing more crops and farm products than could be sold at high prices and so the prices of farm products fell and they remained low through the 1920’s and as a result to this, some farmers lost so much money that they could not pay the mortgage of their farm. These farmers then had to either rent their land or move.
The factories that were expanding to accommodate the consumer were actually over expanding and making too many goods. The over expansion in the industry (especially the automobile industry) and agriculture caused a fall in prices. Surplus goods piled up, having an unpleasant effect on the economy. Workers and farmers failed to share in the prosperity of the 1920’s. Industrial production increased about 50 percent, but the wages of industrial workers rose far more slowly. Due to this, these workers would not buy goods as fast as the industry produced them. Many people had to buy on credit and after awhile, workers reduced their spending to hold down their debts. Then the amount of money in circulation decreased and business became even worse.
From 1925 to 1929, rising stock values encouraged many people to buy stocks in hope of making large profits following future price increases. Stock values dropped rapidly on October 24, 1929 (known as Black Thursday. Thousands of people lost huge sums of money as stock values fell far below the prices paid for the stock. Banks and businesses had also bought stock, and many lost so much that they had to close down. Stock values fell almost steadily for the next three years.
The imbalance in American economy was further increased due to the problems in foreign trade. Exports from the U.S. to Europe exceeded imports. American loans and investments largely financed the exports. The Smoot-Hawley Tariff Act of 1930 contributed to the drop of the Great Depression. This law greatly increased a number of tariffs. Taxes rose so high that other nations reacted by raising tariff on U.S. goods.
The Great Crash of 1929 was the end result of WWI. It affected the rich, the poor, the factory workers, the farmers, the bankers, and the stock brokers. In other words, it affected everyone. The Great Depression is known to be the worst economic disaster in the U.S. history. Depression dealt a fatal blow to the ideals of liberalism, democracy, and capitalism. For this reason, this event is known to have caused many people to change their ideas about the government and the economy.
This tragic event ended after nations increased their production of war materials at the start of World War II. This increased level of production provided many jobs and put large amounts of money back into circulation. The depression had a lasting effect on the United States government and on many Americans.
