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The 1920s saw a rise in buying cars and appliances "on installment," or what we call credit today (image courtesy of the Joliet Public Library).
Many people in the past have argued that the stock market crash or President Hoover's "hands off" policy of the government staying out of economic affairs caused the Great Depression, but this simply is not true. The Great Depression was caused by a combination of economic issues and bad luck and it affected the entire world. Here are a few of the main causes of the Great Depression.
Buying on Credit
Using a loan to buy something is called buying on credit. A bank offers you money and asks you to pay them back, along with some extra money called interest. Interest is a fee for borrowing money. The problem is that farmers were not the only people buying things on credit. Millions of Americans used credit to buy all sorts of things, like radios, refrigerators, washing machines, and cars. The banks even used credit to buy stocks in the stock market. This meant that everyone used credit, and no one had enough money to pay back all their loans, not even the banks.
World War I and Over Production
World War I was the largest war the world had ever seen before World War II. Millions of people fought and died during the war. With so many people fighting, there were not enough farmers growing food for everyone. This made the cost of food go up, so the farmers still at home bought more land and new tractors to make more money. They used bank loans to buy the land and tractors, because they thought they would make enough money to pay the banks back quickly. When the war ended, the food prices went back down again, so the farmers had to take more and more loans to pay for all the land and equipment they had bought. No one thought this was a problem, as long as the farmers kept growing crops and making enough money to pay the banks for their loans.
Gas-powered farming equipment cut the labor required for farming in half. This meant more acres could be farmed, but fewer farmers were needed (OHS Collections).
The Stock Market Crash and the Dust Bowl
In 1929, the New York Stock Market crashed. Everyone had been buying stocks on credit and not using real money. When people and banks started asking for the money they had loaned to be paid, no one had enough money. There were whole countries that went bankrupt when their loans were called in! Now, no one in the stock market had money, which meant none of the banks had money. This meant that people who deposited their savings in banks could not get any of their money back. It was all lost.
A "Black Blizzard" or Dust Storm in the Panhandle. Taken April 11, 1935, Texhoma, Oklahoma (OHS Collections).
Political Decisions
Hoover did take action to intervene in the economy, but by that point it was too late. Hoover dramatically increased government spending for relief, allocating millions of dollars to wheat and cotton farmers. Within a month of the crash, Hoover met with key business leaders to urge them to keep wages high, even though prices and profits were falling.
The greatest mistake of the Hoover administration was the passage of the Smoot-Hawley Tariff in 1930. It was meant to promote more spending on American-made products in the United States but eventually led to an international trade war.
President Herbert Hoover (image courtesy of the Library of Congress).
FAQs
Although Oklahoma agriculture had been in the doldrums for a decade, signs of the Great Depression emerged only in 1930 as a drought hit the region. This coincided with the opening of the East Texas oil field, which created a petroleum glut and caused rapidly falling oil prices and extensive layoffs.
What caused the Great Depression in history? ›
The beginning ofAmerica's "Great Depression" is often cited as the dramatic crash of the stock market on "Black Thursday," October 24, 1929 when 16 million shares of stock were quickly sold by panicking investors who had lost faith in the American economy.
What event historically triggered the Great Depression? ›
The U.S. stock market crash of 1929, an economic downturn in Germany, and financial difficulties in France and Great Britain all coincided to cause a global financial crisis.
What caused overproduction in the Great Depression? ›
The Causes of the Great Depression Overproduction: The 1920s witnessed a rapid economic expansion, as manufacturers made and sold new products like cars, radios, and refrigerators. Many consumers lacked the money to buy these goods. Manufacturers were soon producing more goods than they could sell.
Did the Dust Bowl cause the Great Depression? ›
The resulting agricultural depression contributed to the Great Depression's bank closures, business losses, increased unemployment, and other physical and emotional hardships.
Which of the following contributed most to causing the Great Depression? ›
The lack of regulation on speculation in the stock and real estate markets, leading to the 1929 stock market crash, contributed most to causing the Great Depression. Protective tariffs like the Hawley-Smoot Tariff Act also worsened the situation by significantly reducing international trade.
What are the main causes of the Great Depression Quizlet? ›
- #1. Stock Market Crash. -Throughout the 1920s, people invested in the stock market in hopes of making money. ...
- #2. Banking Crisis. -People deposit money in banks for safe-keeping. ...
- #3. Overproduction. -Industry thrived in the 1920s because of mass production. ...
- #4. Under-consumption. -By 1929 the buying spree began to end.
The Great Depression was a worldwide economic downturn that began in the fall of 1929 and did not end in many places until the Second World War. It was triggered in large part by a sudden crash of the American stock market on October 29, a day widely known as Black Tuesday.
What ultimately ended the Great Depression? ›
Mobilizing the economy for world war finally cured the depression. Millions of men and women joined the armed forces, and even larger numbers went to work in well-paying defense jobs.
Who got rich during the Great Depression? ›
Howard Hughes grew up rich and got even richer during the Great Depression. In fact, the seeds of his eventual billion-dollar aerospace and defense empire were sown during this time.
The causes of the Great Depression included the stock market crash of 1929, bank failures, and a drought that lasted throughout the 1930s. During this time, the nation faced high unemployment, people lost their homes and possessions, and nearly half of American banks closed.
What president was responsible for the Great Depression? ›
Billions of dollars were lost, and thousands of investors were ruined. After the stock market crash, President Hoover sought to prevent panic from spreading throughout the economy. In November, he summoned business leaders to the White House and secured promises from them to maintain wages.
What were the political causes of the Great Depression? ›
The Great Depression was a global economic crisis that may have been triggered by political decisions including war reparations post-World War I, protectionism such as the imposition of congressional tariffs on European goods or by speculation that caused the Stock Market Collapse of 1929.
What started the Great Depression? ›
Among the suggested causes of the Great Depression are: the stock market crash of 1929; the collapse of world trade due to the Smoot-Hawley Tariff; government policies; bank failures and panics; and the collapse of the money supply.
What were the best investments during the Great Depression? ›
The best performing investments during the Depression were government bonds (many corporations stopped paying interest on their bonds) and annuities.
What stopped the dust bowl? ›
In the fall of 1939, after nearly a decade of dirt and dust, the drought ended when regular rainfall finally returned to the region. The government still encouraged continuing the use of conservation methods to protect the Plains' soil and ecology.
Did the gold standard cause the Great Depression? ›
A number of complex factors helped to create the conditions necessary for the Great Depression—adherence to the gold standard was just one of those factors.
What signaled the beginning of the Great Depression? ›
The stock market crash of October 1929 signaled the beginning of the Great Depression. By 1933, unemployment was at 25 percent and more than 5,000 banks had gone out of business.
