Causes of the Great Depression and the Stock Market Crash
The Great Depression was the longest and worst economic collapse in the
history of the modern industrial world, which was initiated primarily by
the stock market crash of 1929. During 1920 's, the United States
experienced and outstanding period of prosperity. However, the economy
began to decline in 1928 when production, sale of goods, and employment
decreased drastically. On October 24, 1929, hailed as Black Thursday, the
stock market crashed, triggering the Great Depression. The stock market
crash did not actually cause the Great Depression, but rather contributed
to the disaster of the Great Depression, which was caused by a number of
serious economic problems. Although the "Roaring Twenties " appeared to
be a prosperous time, income was very unevenly distributed. Businesses
prospered tremendously, but the workers received a relatively small share
of the wealth produced. At the same time, taxes were lowered for the
upper class. As a result of these trends, the top .1 percent of American
families had an income equal to that of the bottom 42 percent. World War
I also weakened the economy. After World War I, the United States served
as the world 's banker and primary creditor as Europe struggled to pay
war debts. Bankers lent too heavily to borrowers in Europe and made the
international banking structure extremely unstable by the late 1920s.
Farmers were already in a depression in the 1920s from World War I.
Farmers expanded their output during the war when demand was high, but
after the war they found themselves competing in an over-supplied
international market. Prices fell and farmers were unable to make a
profit. The stock market crash of 1929 specifically had an impact on the
Great Depression. Speculation in the 1920s caused many people to invest
in stocks with loaned money (credit) and used these stocks as insurance
for buying more stocks. But in the later 1920s, stock investment began to
decline due to lack of confidence. In late October, prices began to drop
rapidly and investors became fearful and began selling stocks. On Black
Thursday, October 24, 1929, the stock market crashed and major
corporations suffered huge losses. Thousands of banks were unable to stay
open since investors were unable to pay back the loans they took in the
1920s. In 1932 and 1933, stocks hit rock bottom, about eighty percent
lower than they had been in their highs in the late 1920s. The demand for
goods declined because people didn 't have any confidence in the economy
and felt poor. These trends caused America 's economy to sink into the
worst depression it had ever seen. The stock market crash inhibited the
ability of the economy to recover from the underlying problems that
affected the economy including unevenly distributed wealth, agricultural
depression, and banking problems. Interested in this subject? Try this
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