Causes of the Great Depression
The underlying cause of the Great Depression remains contraversal. Although it is often blamed solely on the Stock Market Crash, that may not be the case. There are several factors that contributed to the decline of the countries economy and led the nation into the devestating Great Depression Era.
One can argue that the Stock Market Crash is responsible for the Great Depression. The lack of government regulation in the market, and the irresponsible buying on credit of the people ultimately drove the country into a huge pile of debt. See Stock Market Crash page for more details (Bolden).
A major problem was in production, as companies anticipated consistant prosperity they began to expand their businesses. Factories built up their workforce, and farmers purchased more farmland and planted more crops. There was a significant overproduction of consumer goods combined with the underconsumption of products by the people. Companies denied the fact that business would not boom forever, and continued to expand and produce goods. But the general public was unable to afford these products with their low wages. Because people were not buying, industries began cutting back on their workforce. With more people out of work, more people were not buying products, furthering the amount of overproduction. This cycle had an overall negative effect on the economy (Danzer).
Another contributing factor was the weak agricultural sector. After World War I, all of the farmers were still in the habit of producing a lot of food to send off to soldiers overseas. However, when the war ended, they keep growing an abundance of crops, which meant the farmers were growing more than they could sell. This destroyed the land because it was being overused. Another problem that occurred was that the value of food decreased. When too many of the same good are being produced, then it takes away the overall value. So many farmers were making the same crops that they made basically no money. In 1929, the average annual income for an American family was $750, but for farm families it was only $273 (Bolden). Farmers were unable to pay for their land as times continued to get worse. Thousands of farms were being foreclosed and people were left with nothing.
America just finished World War I, which meant billions of dollars was spent on fighting and teaming up with allies. In fact, America lent about $7 billion to its allies, plus about $3 billion after the war for aid and reconstruction. America
was not the only country that was going into a depression; so was France and Britain. European nations were struggling to rebuild themselves after the war. This meant they were not able to pay back all the money America lent to them; causing America to basically give away $10 billion. Germany had the biggest war price tag, $33 billion in reparations, but they were not able to pay it off anytime soon (Bolden). Four huge major countries had debts, but none of them were capable to pay them off at the time.
The depression in other countries contributed to the decline in foreign markets. Other countries were not able to trade as much or export goods that they usually did. People were also not willing to import American goods because it was too expensive. The Smoot- Hawley Tariff Act in 1930 was approved to raise taxes on imports in hope of encouraging more Americans to buy nationally made goods. Other nations reacted by making a tariff of their own, making U.S goods to pricey. American farmers and businesses did less export (Bolden).
Unequal disrtibution of wealth during the 1930's became very problematic on a variety of levels. This skewed distibution of money existed between the rich and poor classes, industry and agriculture, and between the U.S. and Europe (Danzer). "Just 1% percent of the population had about 40% of the wealth" (Bolden 8). That same 1% of wealthy people controlled a large portion of all savings while 80% of Americans had no savings at all. There was a large pay gap between that of the working class and the cooperate executives. The national income rose from $74.3 billion in 1923 to $89 billion in 1929. But the rewards from that time period were not distributed equally amoung the people. While people like Henry Ford pulled in $14 million in one year, the average worker only made $750 annually This imbalance of wealth between the people resulted in an unstable economy (UADDit). The uneven distribution of wealth between The U.S. and Europe was due to the lasting effects of World War I and Tariff Act mentioned previously.
The cause of the Great Depression may not be defined by a single event, but rather, many factors contributing to the overall decline of Americas economy and a depressed nation.
One can argue that the Stock Market Crash is responsible for the Great Depression. The lack of government regulation in the market, and the irresponsible buying on credit of the people ultimately drove the country into a huge pile of debt. See Stock Market Crash page for more details (Bolden).
A major problem was in production, as companies anticipated consistant prosperity they began to expand their businesses. Factories built up their workforce, and farmers purchased more farmland and planted more crops. There was a significant overproduction of consumer goods combined with the underconsumption of products by the people. Companies denied the fact that business would not boom forever, and continued to expand and produce goods. But the general public was unable to afford these products with their low wages. Because people were not buying, industries began cutting back on their workforce. With more people out of work, more people were not buying products, furthering the amount of overproduction. This cycle had an overall negative effect on the economy (Danzer).
Another contributing factor was the weak agricultural sector. After World War I, all of the farmers were still in the habit of producing a lot of food to send off to soldiers overseas. However, when the war ended, they keep growing an abundance of crops, which meant the farmers were growing more than they could sell. This destroyed the land because it was being overused. Another problem that occurred was that the value of food decreased. When too many of the same good are being produced, then it takes away the overall value. So many farmers were making the same crops that they made basically no money. In 1929, the average annual income for an American family was $750, but for farm families it was only $273 (Bolden). Farmers were unable to pay for their land as times continued to get worse. Thousands of farms were being foreclosed and people were left with nothing.
America just finished World War I, which meant billions of dollars was spent on fighting and teaming up with allies. In fact, America lent about $7 billion to its allies, plus about $3 billion after the war for aid and reconstruction. America
was not the only country that was going into a depression; so was France and Britain. European nations were struggling to rebuild themselves after the war. This meant they were not able to pay back all the money America lent to them; causing America to basically give away $10 billion. Germany had the biggest war price tag, $33 billion in reparations, but they were not able to pay it off anytime soon (Bolden). Four huge major countries had debts, but none of them were capable to pay them off at the time.
The depression in other countries contributed to the decline in foreign markets. Other countries were not able to trade as much or export goods that they usually did. People were also not willing to import American goods because it was too expensive. The Smoot- Hawley Tariff Act in 1930 was approved to raise taxes on imports in hope of encouraging more Americans to buy nationally made goods. Other nations reacted by making a tariff of their own, making U.S goods to pricey. American farmers and businesses did less export (Bolden).
Unequal disrtibution of wealth during the 1930's became very problematic on a variety of levels. This skewed distibution of money existed between the rich and poor classes, industry and agriculture, and between the U.S. and Europe (Danzer). "Just 1% percent of the population had about 40% of the wealth" (Bolden 8). That same 1% of wealthy people controlled a large portion of all savings while 80% of Americans had no savings at all. There was a large pay gap between that of the working class and the cooperate executives. The national income rose from $74.3 billion in 1923 to $89 billion in 1929. But the rewards from that time period were not distributed equally amoung the people. While people like Henry Ford pulled in $14 million in one year, the average worker only made $750 annually This imbalance of wealth between the people resulted in an unstable economy (UADDit). The uneven distribution of wealth between The U.S. and Europe was due to the lasting effects of World War I and Tariff Act mentioned previously.
The cause of the Great Depression may not be defined by a single event, but rather, many factors contributing to the overall decline of Americas economy and a depressed nation.