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Causes of the Great Depression

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Causes of the Great Depression

The Great Depression also called Depression of 1929, or Slump of 1929, began in 1929 and lasted until 1939. It was the longest and most severe depression ever experienced by the industrialized world. Though the United States economy had gone into depression six months earlier, the Great Depression may said to have begun with a catastrophic collapse of the stock market prices on the New York Stock Exchange in October 1929 call the Stock Market Crash of 1929. During the next three years stock prices in the United States continued to fall, until by late 1932 the had dropped 20 percent of their value in 1929 (http://www.britannica.com/bcom/eb/article/0/0,5716,38610+1,00.html).

More than a half-century after the fact, there is no consensus on that caused the Great Depression. The one thing that is really known about the Great Depression is that it had many under lying causes (McElvaine 26). Speculation in the 1920's caused many people to buy stocks with loaned money and the used these stocks as collateral for buying more stocks. Broker's loans went under $5 million in mid 1928 to $850 million in September of 1929. The stock market boom was very unsteady, because it was based on borrowed money and false optimism. When investors lost confidence, the stock market collapsed, taking them along with it (http://www.bergen.org/AAST/Projects/depression/causes.html).

It seemed to good to be true, and it was. The margin of leverage when prices were rising would act in reverse if prices fell. All of the margin buyers would be wiped out quickly. The whole market in 1929 compounded the leverage idea as "investment trust" proliferated. The investment trust existed for the sole purpose of owing stock....

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...lack Tuesday an unprecedented 16.4 million shares changed hands. Stocks fell so much, that at many times during the day no buyers were available at any price (McElvaine 48).

This speculation and the resulting stock market crashes acted as a trigger to the already unstable U.S. economy. Due to the misdistribution of wealth, the economy of the 1920's was one very much dependent upon confidence. The market crashes undermined this confidence. The rich stopped spending on luxury items, and slowed investments. The middle-class and poor stopped buying things with installment credit for fear of loosing their jobs, and not being able to pay the interest. As a result industrial production fell by more than 9% between the market crashes in October and December 1929 (McElvaine 48.)

Bibliography:

McElvaine, Robert S. The Great Depression. New York: Times, 1984.
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