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What Caused the Great Depression

Although many of us did not live through the Great Depression, we are well aware of the effect that it had on the world. Millions of people were left homeless and without jobs as the economic markets of the world crashed. Many people lost all their money as banks closed and unemployment rose to a record high. It started in late 1929 and most countries did not recover until the early 1940’s. International trade dropped dramatically and most commodities become worth very little. It was a difficult time to live through and still effects the way that we view the economic market today.

What caused the Great Depression?

Historians and economists do not all agree on the cause of the Great depression. However, it is agreed that there was not a single cause and many factors led to this devastating economic downturn. The major cause of the Great Depression is seen as the stock market crash in America (now known as Black Tuesday). As stock prices fell people began to panic and sought to sell their stock, this dropped the price of stock lower and made them worth virtually nothing.

Banks who has invested large amounts of their patrons money in stock also lost money in the stock market crash and had no way to regain it. This forced some of the banks to close their doors because they didn’t have enough money. This sent people rushing to their bank to withdraw their money in case the remaining banks also closed. This massive withdrawal of money led to more banks closing and many people becoming bankrupt. This was due to the fact that once the bank was closed there was no way to retrieve their money they had invested. Banks that remained open were unsure of the economic stability and limited the amount of loans they gave. This meant that businesses and people had less money with which to make purchases.

The stock market crash and the closure of banks also had effects on the business and industry. Most lost money in the stock market and also through bank closure meaning that they had to cut employment hours and wages to save money. People could not afford to buy goods and this impacted on the businesses. A tariff was placed in imported goods meaning that businesses that relied on imported goods had no way to continue to run.

The virtual collapse of the stock market and economy in America then affected the rest of the world. Prices for commodities dropped drastically as countries had no money for international trade.

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