1. The Stock Market Crash of 1929:
Throughout the entire 1920s, the stock market kept growing, and it was at its peak in 1929. At this point, however, things rapidly descended on the other side of the peak with the decline of production and the increase of unemployment. Stock prices started decreasing in around September 1929, and completely fell in late October. The market went into a free fall, resulting in a loss of billions of dollars. Since the crash triggered the collapse of banks, closing of businesses, and increased unemployment, it definitely qualifies as a key factor that led to the Great Depression.
2. No Diversification in the American Economy:
Americans in the 1920s generally believed that their fortunes were in sight, and this led to a "get rich" mentality, causing Americans to recklessly spend on dry land (which led to the stock market crash, as the Americans realized that they couldn't make money off of it, so they invested in stocks), as well as many other kinds of products that they really didn't need. In addition, the American economy was rather fixated upon automobiles and construction, leaving out the key agricultural industry that was so successful beforehand for America, as, due to agricultural overproduction following World War I, prices for farm products dramatically fell, and President Coolidge completely failed to address this.
3. Wealth Concentration:
A large portion of American money was concentrated in the hands of America's rich, resulting in an unequal distribution of wealth in America. There was structural weakness in consumer demand, and over 50% of American families lived at, or below the subsistence level in 1929. Roughly 2% of American families controlled 26% of the United States' wealth, which certainly helped start the Great Depression, as the people's spending power was decreased.
4. Credit Structure:
As mentioned earlier, Americans spent lavishly on products that they really didn't need, showing a disregard for their future. To do so, they had to spend on credit, and in doing that, millions of Americans ended up in debt, making the debt amount way higher than the credit inventory. This led to less credit, lower prices, and an increasing number of bankruptcies throughout the United States at the time.
5. Banking System:
In 1920, there were a whopping thirty thousand banks in the United States, with little banking supervision. While farmers were unable to make loan payments to these unsupervised banks, tons of bank failure occurred. The banks that were not affected by this were in competition with each other and kept offering increasingly higher interest rates, making loans easily obtainable.
This was a great summarized explanation of the factors that led to the Great Depression. Adding on, another cause of the Great Depression was the lack of foreign trade, which was emphasized by the implementation of various tariff programs and high import taxes, which prevented trading with outside countries such as France in order to help American manufacturers. As a result, the people's decreased need for these goods hindered the economy, as well as the country's money supply, from growing.
ReplyDeleteI really like how you put this into 5 different reasons instead of a long paragraph a lot of these posts. Could it have been possible if one of these problems were avoided would the great depression still have been as bad as it was or were the other problems just too great to make a change
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