The Causes of the Great Depression

1933 saw the worst point in the depression – more than 15 million Americans, one-quarter of the nations workforce, remained jobless. We have to say it is a nightmare in the US history. Therefore, it has been a hot topic for the economists to probe on, and they seldom agree with each other on the causes of the Great Depression. However, we do know that the depression was caused by serious weaknesses in the economic system.

It was triggered by the stock market crash of October 29, 1929, a common misconception that was the main cause of the Great Depression. Actually, the economic system was very ill as a patient at that time, just a bad weather triggered all the syndrome of it. We can compare the economic system at that time as a patient. If it is healthy enough, it can go through the bad weather. Nevertheless, we can call the crash of stock market a direct cause.

Also, the consequences were banks and industries closed, unemployment, then products were disguisedly hard to sell, and workers had no money to buy. They are the fever, and headache, part of the syndrome. What is wrong with the economic system at that time then? What caused the depression? It was the results of deep problems in the economy that were building up through the previous prosperity decade¡± of the 1920s.

Since the stock market crash in 1929 is a trigger, and the depression is the consequence, we have to probe further into the history. Lets go back to the decade after World War I. The US witnessed rapid economic progress at that time, and it is called the prosperity decade a blessing in disguise. Why do we say it is a blessing in disguise? It is because the economic system at that time was running wildly without proper control by the government. Big industries were booming, and in 1922, 31.6% of the wealth of the US was in the hand of 1% citizens.

Further, in 1929, 36.3% of the wealth was held by 1% the US citizens. Whats more, 60% of the families were living on the edge of poverty. Therefore, there were plenty of the products produced without considering the purchasing ability of the consumers. Worse still, at that time, after the World War I, many European countries had partially recovered from the damages of the war, and they produced plenty of products, too. Some of them were exported to the US.

On the contrary, the US found the dramatic decline of the export volumes, so the government at that time increased the custom duty by 20-50%, which made the things even worse for the US economy. Hence, industries had no choice but to close their business, in turn, the US saw the increase of unemployment. Also, the tariff wall to keep foreign goods away made people only to find that they had no money to buy those expensive domestic goods and things were simply going worse.

Apart from that, Britain and France who borrowed a big deal of money from the US depended on German financial compensation heavily. When Germany defied the reparation clause, they had no money to pay back to the US. It also hurt the US a lot. However, domestically, people didn’t see the actual reason leading to the boom and disguised prosperity, and they thought the economy would go on a wealthy road for a long time.

Another thing is that the debt system caused serious problems, too. For example, the farmers at that time bought expensive machinery on loan, and workers borrowed money from banks for investment. Wheat was still massively produced until they found Europe no longer needed their products. So, farmers couldn’t sell their wheat and so they didn’t have money to pay back the bank. Factories found the market was overwhelmed by goods and they started to gain loss other than profit. Tons of people couldn’t return their money to the banks. Common people were scared and withdrew cash from their bank. Hence, there was no confidence on banks, and they went bankrupt.

Consequently, the industries had no money to run their business and it caused a wide range of unemployment. Thats why people started to live beneath the poverty line. Another thing to be mentioned is that the natural disaster of the Dust Bowl. “Dust Bowl” was a term given by the people who lived in the drought-stricken region during the great depression. The “Dust Bowl Days” is also known as the “Dirty Thirties”, and the decade was full of extremes: tornadoes, floods, droughts, and dirt storms. Many farmers went broke under the force of nature, and the economic situation. Many of them had to abandon their fields.

To conclude, the Great Depression was triggered by the stock market crisis, and caused by the fundamental problems of economy for the lack of control and guide by the government in economy, which made the distortion portion of the rich and the poor, which sharpened the contradiction of the over-production” and the lack of money to buy, and there was no strong system of social protection for the poor; the situation was worsened by the tariff barrier of international trade which was a mistake of the then government, and the natural disasters, especially, the Dust Bowl.