The Great Depression was caused by many different factors including:

  • Stock market boom between May 1928 and Sept. 1929 was followed by a huge crash in October 1929black_tuesday_22.jpg
    • October 29, 1929 (Black Tuesday) the market failed when sixteen million shares were traded, industrial index dropped 43 points so stocks became worthless
  • Lack of Diversification
    • prosperity of economy depended on only a few industries (construction and automobile) these industries declined and the new ones (petroleum, chemicals and plastics) had not developed enough to compensate
  • Unequal Distribution of Wealth
    • Demand did not keep up with supply
    • industrial/agricultural production increased but the proportion of profit that went to farmers, workers, and other potential consumers was not large enough to make market for goods that were being produced
    • 1929 more than half of American families lived on edge or below minimum subsistence level
  • Credit Structure
    • farmers were deep in debt because crop prices were too low to pay for what they owed
    • small banks were always in trouble in the 1920s because costumers depend on loans
      • many small banks failednobody_knows_you.jpg
    • larger banks were also in trouble because some invested recklessly in the stock market
  • Declining Exports
    • European demands for American products declined in the late 1920s
      • caused by growing European industries/agriculture and some European nations suffering economically after WWI
    • high American protective tariffs made it hard for Europeans to sell goods in American markets
  • Unstable International Debt Structure
    • after WWI European nations allied with US owed a lot of money to the American banks but these amounts were too large to be paid without breaking their economies
    • Germany and Austria were to pay reparations but were unable to do so
    • caused European economy to become destabilized
    • Although US govt. refused to forgive/reduce any debts the banks made larger loans to European govts. to pay off their earlier loans (debts/reparations paid by creating more and more debt)

Sources/ More information: textbook, AMSCO, The Great Depression