What is a
depression? “A depression is characterized by irregular increases in
unemployment, restriction of credit, shrinking output and investment, price
deflation or hyperinflation, numerous bankruptcies, reduced amounts of trade
and commerce, as well as highly volatile/erratic relative currency value
fluctuations, mostly devaluations.”
The Great depression was a huge tragedy that removed millions of
working people in the United States from their jobs. “The Great Depression
was a period during the 1930s when there was a worldwide economic depression
and mass unemployment.” Prior to the Great Depression, the United States
was in a state some economists considered it the “golden age”.
In the 1920s, also known as the roaring twenties, the country’s economy
and stock market were thriving at its highest ever. The Roaring Twenties was a
period of peace and prosperity in America and the United States was also
wealthier than it had ever been before. “In this decade, America became
the richest nation on Earth and a culture of consumerism was born.” This
fad was to be short lived, and the economy suddenly took a large downturn
causing 14 Billion dollars to be lost in shares and stocks on Black Tuesday.
Many Americans have cited the main reason for the depression as the failure of
the stock market but in this paper, we will examine
different causes of the tragedy that struck the United States.
The Great depression was the worst economic downturn in American history and
since most country’s economies depended on them, the depression spread all over
the world. What could have caused such a thriving economy to fall so bad that
it’s stock market value fell by 89.5%?
Stock Market Crash of 1929 -In the 1920s, Americans were purchasing stocks on
the margin, which means they bought stocks on credit because the value kept
increasing, which allowed more and more stocks to be purchased freely as profit
was increasing. People invested their life savings as they saw a large way to
make easy money without working as the prices of these stocks kept on rising
and rising. In late 1929, stock prices began to drop, panic set in and
Americans were confused and they began to trade their stocks to make some
money. This did not work but it threw the market into a free fall, on “Black
Tuesday (October 29), stock prices collapsed completely and 16,410,030 shares were
traded on the New York Stock Exchange in a single day”. The stock market
weakened the American economy because individuals and businesses had invested
so much of their money into the stock market, that when it crashed they had no
The Banking System Crisis – Once panic set in, anxious investors and businesses
went to the bank to withdraw all their money at once. Banks only kept a
percentage of these deposits and gave out the rest in forms of loans, bonds and
government securities. Since these banks did not have lots of cash at hand,
they had to sell all their assets to come up with the cash. These “bank runs”
pressured banks into solving. During the economic downturn over 9000 banks had
filed bankruptcy and depositors lost
over 140 million dollars as the great depression took place.
Low Consumer Purchasing Power – The market crash hurt a high percentage
of Americans’ incomes and savings that they stopped buying goods and using
unnecessary services. The population did not have confidence in buying goods
anymore as they saw it as a major expense on their part. This hurt a lot of
businesses because they had produced so many items before the economic
downturn. Business had low inventory turnover as their supply superiorly
outmatched their demand causing businesses to fold up and
Smoot-Hawley Act- The US Congress passed the Smoot-Hawley Tariff Act of 1930. This
bill was passed to aid American farmers who were suffering from declining prices
on agricultural products due to overproduction by farmers worldwide. This bill
raised import taxes on over 900 different products. Other countries felt the
impact of this and retaliated by raising their tax levels as well, this caused
world trade to fall. American imports fell by 66%, also imports dropped from
1.4 billion dollars in 1929 to a mere 390 million dollars in 1932, farmers
could not make more money as foreign countries barred their products from
entering the country. This act of protectionism led to isolationism by the
United States of America
These all led to
major effects on the citizens of America and also the businesses there.
Unemployment- Many people lost their jobs during this time of the Great Depression. Almost
15 million people were out of work. Having lost their jobs, it was very difficult for people to bring food on
the table. Families were even forced to sell their houses and move to dedicated
homeless shelters. It was hard to get jobs anywhere because every part of the
country had been affected. The Dust Bowl caused heavy agricultural damage which
led to high unemployment levels in that sector.
fell 30 percent between 1930 and 1932. This helped
consumers, who lost their jobs. It hurt farmers, businesses, and homeowners.
Businesses could not make any profit from any sales as the prices of the items
were abnormally low. Homeowners tried to get rid of their many properties but
could not make any substantial profit from sales.
Economy- By 1932,
650 banks failed. The economic output in 1928 was a high 105 billion dollars
and at the end of 1933, the economy produced 57 billion dollars. This was part
of the deflation were prices fell really low.
Living- Due to the loss of jobs in the workforce, many people lost houses,
cars. A lot of people in the south of the united states suffered the most due to
the tornado that affected them. Without jobs and money, these people could not shelter
their families or even feed them.