What Caused The Great Depression Essay Example

The great depression was the greatest economic depression in US history. It started in 1929 and lasted into early 1940s. It can also be referred to as the biggest economic tragedy in the US, because, during the great depression, unemployment rates were very high, productivity of goods almost came to a halt, banks closed their doors and the inflation rates in the country were unbelievably high. So what brought about such a great tragedy to one of the most powerful economies at the time?
Firstly, the crash of the stock market was a major contributing factor to the great depression. In fact, many believe that it was the stock market crash that caused it. Why is this so? Before Black Tuesday of 1929, as is called the day of the crash, the country was enjoying a decade of confidence, enthusiasm and prosperity. After the World War 1, people were very optimistic about their lives. What shocked many was the prosperity of the stock market. Known to be a risky investment, stock market did not appear that way in the 1920s. With more people investing in the market, stock prices began to rise. However, by 1928, the stock market explosion had begun. By this time, stock buying was no longer seen as a long-term investment, but the way people can become rich. News and rumors spread of chauffeurs and teachers, making millions off stock marketing. By then, everyone put their trust in the business and even bankers had put their clients’ money into stock investments without their knowledge. Business seemed wonderful until 24 October 1929. The stock prices had plummeted. People were selling their shares at an alarming rate. People rallied outside Wall Street, and even rumors spread of many committing suicide. This was, however, silenced when a group of bankers pulled out their own money in a bid to save the business. On seeing this, many people got inspired to stop selling. On this day, 12.9 million shares had been sold. This was just the start. On 29 October, what is commonly known as Black Tuesday, the prices plummeted again. 16.4 million shares were sold. This time, the banks did not swoop in to save the day, and there were even rumors that they too were selling theirs.
The stock market crash was just the start. The banks began closing as they too were losing money. Throughout the 1930s, over 9,000 banks had failed. People lost their savings and the bank deposits that were uninsured. On seeing this, many went to the few surviving banks to get all their savings and this greatly affected them as they lost much money leading them to bankruptcy. With the concern for survival, some banks hesitated in giving out loans as it would create bigger numbers for their own personal loans. This made the situation worse as it led to less expenditure for the banks.
Moreover, the economic situation scared the people so much that they stopped buying goods. This was because people were greatly shocked by the way the stock market had plummeted and by the way the banks would make people bankrupt. People were shaken so much that they opted to cling to the money they had salvaged by then with the fear of becoming severely poor. Unfortunately, the lack of buying led to the reduction of items being produced. As the levels of expenditure were plummeting, some companies and organizations had to cut back on wages and even lay off some of their workers to keep the company alive. This raised the unemployment rates drastically and many businesses and companies collapsed in that connection.
Nevertheless, many policies greatly influenced the country’s economic crisis. For example, there was the Agricultural Adjustment Act that involved destroying of excess output; while many families would be suffering from hunger, the government would destroy acres of land and millions of livestock with the aim of lowering prices to hard-pressed families. There was also the Revenue Act of 1932 that involved hiking tax from 25% to 63%. On his election, President Roosevelt further imposed personal and corporate tax increments. The highest individual rates were as high as 79%. This massive tax increments killed incentives for work, entrepreneurship and investment at a time it eats sorely needed.
In addition, it was at times like these that people thought that the farmers were safe as they could at least produce their own food. Unfortunately, this was not the case. At this period, there was a time of drought and strong dust winds. These winds would get rid of the top, fertile and exposed soil leaving the farms unfertile and unable to sustain crops. Here, small farmers were hit hard as they solely depended on their produce, as they would use loans to buy seeds and pay off the debts with their produce. Now, without even being able to feed themselves, some were forced to sell their lands, rendering them homeless and bankrupt. This was also because many farmers bought stocks with high loans from bankers: 10% being their input and the rest (90%) being offered as a loan in the banks. With the stock market crash, the bankers had no choice but to get all their clients to pay off their loans and they became hardly hit.In conclusion, as seen above, it is true to say that the Great Depression killed the people’s confidence in the economy and also made millions of investors severely bankrupt. Because of the main causes as seen above, the depression caused a lasting impact on the American economy and people’s lives.