Causes of the Great Depression

The Great Depression was an economical crisis that affected the whole world and left 13 million people unemployed. The entire American banking system almost collapsed with over 5,000 banks going out of business. The causes of the Great Depression are still a subject of great debate among economists today.

Possible Causes

• Property and land prices collapsing after a property boom, causing investors to lose money.

• Too many people speculating on the stock market to try and make money quickly.

• Black Tuesday – the stock market crash that happened on October 29, 1929 is considered to be one of the main causes of the depression. Stockholders lost over 40 billion dollars, which had a devastating effect on the world economy.

• Unbalanced distribution of wealth: wealthy Americans owned more than a third of all the American assets. When the economy started to struggle, these people started to hoard the money that caused industries to struggle even more.

• An overabundance of small banks that didn’t have enough funds to pay out all the people’s savings at once after the stockmarket crash. In the 1920s, bank deposits were not insured and when a bank would fail, all the people who banked there, lost their savings.

• Reduction in spending. As mentioned before, people stopped spending money after the stock market crash. This meant there were more products that were produced than people were buying, forcing factories to reduce their workforce. With the unemployment rising, spending decreased even more, putting more people out of work, creating an downward spiral.

• America recalling debt from European countries caused the economies of countries that were already struggling financially after the war to collapse.

There are many factors that came to play and that may have contributed to the Great Depression. What is certain is that there was one big domino effect that caused the one economy after the other to struggle, leaving thousands of people without income.