An Analysis of The Causes of The Great Depression

The Great Depression was an economic disaster that started in 1929 and went on throughout the 1930’s. It occurred in multiple countries, but it was the worst in the United States. In the United States, millions of people were affected by it, including the rich. During the Depression, the rich were still ok, but many of the poor and middle class families lost their jobs, homes, and money. Hundreds of thousands of people had to live Hoovervilles, which were shantytowns that were named after the President at the time, who many people blamed for the Depression. The Great Depression was the worst economic disaster to ever take place in the United States. The worldwide GDP fell by 15%. In the 2008 recession, the GDP went down by 1%, and people today thought that was terrible. The Great Depression was caused by the stock market crashing, from overproduction and underconsumption, and from the banks lending out too much money. These three things combined led to the worst economic disaster in history.

During World War I, the United States was bustling and the amount of production occurring was extremely high due to the war effort. This was necessary to ensure the military had everything that it needed. After the war, this overproduction didn’t stop like it should have. Farmers were farming more and products were being made quicker due to the widespread adoption of assembly lines. Instead, it continued and the cost of goods, especially produce, went down because of the surplus the US had. Due to electricity becoming more available, many new inventions using electricity were being sold. This was causing people to spend most of the money that they were bringing in from their jobs. It was good for the economy until people stopped spending because they had everything they wanted. After this, companies still had their products, but no one was buying them, so they lowered the prices and laid off a lot of workers. Due to the prices being lowered on a lot of things and people getting laid off, this cycle continued. Many economic historians contribute the cause of the stock market crash to overproduction because companies weren’t selling as much and their stock prices were going down.

On October 24th, 1929, the worst stock market crash ever occurred. The price of many of the popular stocks plummeted. The Dow Jones Industrial Average dropped from around 350 points to 200 points. The cause for the crash was because many people thought that the stock market would continue to rise forever, and it would basically be free money. They thought this because it had consistently been going up for the last ten years because the war was over and it was the roaring twenties. But eventually it crashed when widespread speculation started occurring. People started selling off their stocks and when they did this, other people sold them too because they thought it was going to crash. Due to the demand of the stocks not being as high as the available quantity was, they started selling for less. This continued just like a snowball rolling downhill eventually creating an avalanche. This caused a lot of people to lose a lot of money, much of which they had to pay back because they were loans from banks.

Before the Great Depression, many people tried to withdraw their money from their banks and even got loans because they were putting it in the stock market because people believed it would continue to go up forever. This caused the banks to not have much money left in them. They were no longer getting any money back from the people that had invested it in the stock market because the stock market crashed. They had given a huge amount of loans to these people. They gave so many loans that when people tried to withdraw their savings because they were laid off from their jobs, the banks didn’t have any money to give the people. This caused people to lose their homes and not be able to afford food and other necessities. By the time The Great Depression was over, 11,000 of the 25,000 banks were out of business. This massive amount of bank failures caused people to have a distrust in banks, even after the FDIC was established to protect the people in the case this happened again. This caused a stifling of the economy and made it so that it took longer for the economy to recover.

The Great Depression was undoubtedly the worst economic disaster the US has ever had. It was caused by a myriad of things, but the overproduction, the stock market crash, and bank failures were the biggest problems. People had to go through a very hard time in the great depression, and it was one the greatest tragedies the US has ever had to go through. It took years for businesses to recover from it, if they did recover. Many businesses went out of business from the lack of customers. Millions of people lost their jobs, and it got to the point where 1 out of every 4 people didn’t have a job. People who did have jobs were also being paid significantly less than they were before the depression. The US government now has laws in place to prevent this from happening again on such a large a scale. Hopefully another depression this large will never happen again.

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