What Was the Exact Cause of the Great Depression?

What Was the Exact Cause Of The Great Depression?

The United States Great Depression leads many people to believe different stories about what actually caused it. The Stock Market Crash in October of 1929 is often referred to as the beginning of the Great Depression, but did it actually cause it? The answer is that it was the spark that lit the flame of the Great Depression.

The Great depression was a financial decline that started in 1929 and lasted through most of the 1930s. Its pinpoint was in North America and Europe, but plagued countries around the world (especially developed countries). Unemployment and homelessness sky rocketed and construction practically stopped in many countries. Industrial production declined by 50%, international trade plummeted 30%, and investment plunged 98%. The Great Depression was more severe and lengthy in the United States than in other developed countries. The unemployment rate rose higher and remained higher longer than in any other western country. As it expanded, the depression, for many Americans, was a hard time. (Garraty 3, Nardo 29-31)

By the fall of 1929 most Americans had reached the peak of success, wealth and happiness. Just a year before, President Hoover predicted that the day when poverty in the United States would be totally eliminated was slowly but surely arriving. James Horan refers to the era as, “a time of plenty”. This was because the country was at the height of a great industrial development which begun after the end of the Civil War. Mass production was in “high gear”. The middle class was very satisfied after receiving a large amount of goods. “It was a lavish era of silk shirts and two-car garages.”(Nardo 29)

The stock market was very successful; there were plenty of new stockholders who were apparently making profits- on paper. In the 1920s, in the U.S. many people began using credit cards to purchase automobiles and furniture. This increased the spending but created debt for the shoppers. Consumers who were deeply in debt risked failure to pay, even when a price deflation occurred and they kept working their jobs. To cope with this dilemma, they drastically cut spending to make payments. Thus, the demand for luxury items and new products dropped.

New cars were not selling as fast as they had been. New electronics such as radios were crowded together in display windows. Warehouses began to be jammed and this led to layoffs. Manufacturers read reports of overloaded warehouse and did not care. They believed that is was only temporary and would soon clear up. (Nardo 30-31)

Early in September the stock market reached an unsurpassed high. Immediately following this “high”, the market began to gradually slide. On the afternoon of October 24, 1929 the great American stock market took a bottomless plunge. Investors finally realized the “stock boom had been an over inflated bubble.” Margin investors were being ruined because stock holders tried to pay back debts. By November of 1929, the Dow sank from 400 to 145. In three days, the New York Stock Exchange removed over 5 billion dollars worth of share values. By the end of the 1929 stock market crash, 16 billion dollars had been erased off stock capitalization.

At that point it seemed as if nothing else could possibly go wrong, but it did. Bank investors had invested their deposits in the stock market. Now that the stocks were destroyed, the banks had lost their clients money. Immediately bank patrons rushed to banks to withdraw their savings all at once. They did not succeed because banks became more conservative in giving out money. Main banks became bankrupt, which just added to the havoc caused by the stock market crash. The entire financial system had become a fiasco. Many bankrupt businesspeople, who were once aristocrats, committed suicide by jumping out of building windows. While others were forced to sell apples and pencils on street corners, just to support their families. Even bank clients who had not invested in shares became broke $140 billion of depositor money disappeared and 10,000 banks ran out of money. (Stock Market Crash of 1929)

The stock market crash of 1929 launched the Great Depression, which lasted from October 1929 to the mid 1930’s. There was an accumulation of poverty which resulted from many workers losing their jobs and being forced to live in broken down towns. One third of Americans were below the poverty line. National unemployment came close to 20%. The number of black Americans without jobs was close to 50%. By 1932 overall manufacturing stood at an insignificant 54%