length: 973 words 2.8 double spaced pages the causes of the great depression since the beginning of the industrial revolution early in the nineteenth century the united states ad experienced recessions or panics at least every twenty years. Only as the economy shifted toward a war mobilization in the late 1930s did the grip of the depression finally ease. Stock prices had been rising steadily since 1921, but in 1928 and 1929 they surged forward, with the average price of stocks rising over 40 percent. Margin buying in particular proceeded at a feverish pace as customers borrowed up to 75 percent of the purchase price of stocks. That easy credit lured more speculators and less creditworthy investors into the stock market. The federal reserve board warned member banks not to lend money for stock speculation because if prices dropped, many investors would not be able to pay back their debts. The stock market began sliding in early september, but people ignored the warning.

Then on black thursday october 24, 1929 and again on black tuesday october 29, 1929 the ball dropped. Overextended investors, suddenly finding themselves in heavily in debt, began selling their stocks. Overnight, stock values fell from a peak value of 87 billion dollars to 55 billion dollars. Speculators who borrowed money from the banks to buy their stocks could not repay the loans because they could not sell stocks. Since bank deposits were uninsured before the 1930s depositors' their money, which in many cases was all that many people had. The stock market crash intensified the course of the great depression in many ways.

Besides wiping out the savings of thousands, it hurt commercial banks that had invested heavily in corporate stocks. Inventories piled up, and in1928 and 1929 manufacturers began to cut back on production and lay off workers. Although the stock market crash and its immediate consequences contributed to the great depression, longstanding weakness in the american economy accounted for its length and severity. Farmers faced high fixed costs for equipment and mortgages incurred during the high inflationary war years. At the same time prices fell because of overproduction, forcing farmers to default on mortgage payments and risk foreclosure. Because farmers accounted for about one forth of the nations gainfully employed workers in 1929, their difficulties weakened the general economic structure. Other industries also had experienced economic setbacks during the prosperous 1920s.

The older industries such as textiles, mining, lumbering, and shipping faltered, newer and more successful consumer based industries, such as chemicals, appliances, and food processing, proved not yet strong enough to lead the way to recovery. The nations unequal distribution of wealth also contributed to the severity of the depression. During the 1920s the share of the national income going to families in the upper and middle income brackets increased. Tax policies contributed to this concentration of wealth by lowering personal income tax rates, eliminating the wartime excess profits tax, and increasing deductions that favored affluent individuals and corporations. In 1929, the poorest 40 percent of the population received only 12.5 percent of aggregate family income, whereas the wealthiest 5 percent received 30 percent.

Once the depression began this unequal distribution of wealth prevented people from spending the amounts of money needed to revive the economy. President herbert hoover blamed the severity of the depression on the international economic situation. The war battered international economy functioned only as long as american banks exported enough capital to allow european countries to repay their debts and to continue to buy american goods. Companies began to cut back production, they also cut back their purchases of raw materials and supplies from abroad and as a result many european economies collapsed.

American financiers sharply reduced foreign investment and consumers bought less foreign goods, debt repayment became even more difficult. Finally, when the hawley smoot tariff of 1930 raised rates to an all time high, foreign governments retaliated by imposing their own trade restrictions, further limiting the market for american goods especially agriculture products. From the height of the prosperity before the stock market crash in 1929 to the depths of the depression in 1932 1933, the u.s. Gross national product was cut almost in half, declining from 103.1 billion dollars to 58 billion in 1932. Consumption expenditures dropped by 18 percent, construction fell by 78 percent, private investment plummeted by 88 percent, and farm income, already low, was more than cut in half.

The consumer price index declined by 25 percent and corporate profits fell from 10 billion to 1 billion dollars. Most shocking was that unemployment rose from 3.2 percent to 24.9 percent from 1929 to 1933. While the collapse of the stock market in 1929 may have triggered economic turmoil, it alone was not responsible for the great depression. The depression throughout the nation and the world was a result of a combination of factors that matured during the 1920s the causes of the great depression. 19 feb 2016 what caused the great depression? what caused the great depression? the great depression was caused by structural weaknesses and specific events that turned it into a major depression and in a way in which the downturn spread from country to country.