The main causes of great depression are reduction in purchasing, stock market crash, and banks closures.
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In 1920s, the new methods of manufacturing and many industries made America’s economy to growl because it was able to produce a lot of raw materials and machinery. Many citizens increased profits especially in the stock market.
However, this period took only 8 years and in the ninth year, the economy begun to go down, and this led to fear among the citizens. Thus, great depression was experienced all over and for this reason, the great prosperity was followed by great depression. This paper sheds light on the causes that led to the great depression in America
According to Bordo and White, the great depression begun in 1929 and many people suffered because all the businesses had failed in many sectors, including agriculture and banks (45). This led to many people losing their jobs especially the mineworkers; thus, there was reduction in purchasing.
Despite the fact that farmers produced many farm goods and products, demand was very low. Those workers in the farms lost their jobs because the farm products prices were too low and the main farmer could not afford to pay the workers. Black employees were the most affected because they were laid off to create vacancies for the whites. People who were employed could not buy produced goods, from either the textile or other industries because their wages were decreased.
Parker affirms that due to all the problems it was not easy to circulate money and people who were jobless moved from one place to another throughout the country to look for greener pastures (104). Most of them followed the railroads while boarding trains in the hope to get jobs in other towns. While moving in these towns some opted to live in the shanty towns whose houses were build with cardboard and driftwood.
As companies continued to lay off their workers, many problems arose because those who were paying their purchased goods through hire purchase were unable to complete their payments and hence the sellers repossessed them. People were misled by economic prosperity, which was there in early 1920s’, and this is why they bought items on credit and hire purchase to pay for a period of one year or more depending on their salaries.
Thomas and Fergusson argue that another main cause of depression was the Stock Market Crash (23). During June and August 1929, the stock market levels increased and reached to the uppermost point. Many economists such as Irving were impressed by the stock prices.
However, after the increase, it started dropping slowly but later a huge drop followed and this happened on the months of October and September, but the most considerable drop was experienced on one Thursday, which the American referred to as black Thursday.
People were selling their stocks and a big crowd gathered on the Stock exchange Wall Street. This led to some people committing suicide. Some of the bankers were still positive, they reinvested a huge amount of money in the stock market, and people purchased the stocks.
Soon after, the stock holders lost the money they had invested, the loss was estimated to be more than 40 billion dollars. Some of the banks closed since their investment depended on the citizens and this was due to the crash.
Ivan outlines that bank closures is also another cause of depression because when the people realized that some of the banks had been closed, they rushed to withdraw their money from the few which were open, and this led to further closing of more banks and those who did not withdraw before the closure became bankrupt (26). Since people did not insure their bank deposits, many of them lost their money.
The very few which remained ceased to give bank loans and this worsened the situation since there were less expenditures. The banks also experienced rising debts because people were unable to repay them.
In conclusion, all these events led to the depression all over America with some people committing suicide and others moving from their land to other towns without knowing where they were destined. Many families fell apart, as well as divorces among the married couples.
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Bordo, Goldin and Eugene White. The defining Moment: The depression and the American Economy in the Twentieth Century. Indiana University Press, Indiana, 2000. Print.
Ivan R. (2002). Rethinking the Great Depression. Chicago: Dee Publishers, 2002. Print.
Parker, E. D. Reflections of Great Depression. Garden City, NY: Double Day & Company, 2002. Print.
Thomas, E. and Ferguson, David. The Great Depression. An International Disaster of Perverse Economic policies. Michigan: University of Michigan Press, 2004. Print.