Home | Learn | What Caused the Great Depression?
The 1920s saw a rise in buying cars and appliances "on installment," or what we call credit today (image courtesy of the Joliet Public Library).
Many people in the past have argued that the stock market crash or President Hoover's "hands off" policy of the government staying out of economic affairs caused the Great Depression, but this simply is not true. The Great Depression was caused by a combination of economic issues and bad luck and it affected the entire world. Here are a few of the main causes of the Great Depression.
Buying on Credit
Using a loan to buy something is called buying on credit. A bank offers you money and asks you to pay them back, along with some extra money called interest. Interest is a fee for borrowing money. The problem is that farmers were not the only people buying things on credit. Millions of Americans used credit to buy all sorts of things, like radios, refrigerators, washing machines, and cars. The banks even used credit to buy stocks in the stock market. This meant that everyone used credit, and no one had enough money to pay back all their loans, not even the banks.
World War I and Over Production
World War I was the largest war the world had ever seen before World War II. Millions of people fought and died during the war. With so many people fighting, there were not enough farmers growing food for everyone. This made the cost of food go up, so the farmers still at home bought more land and new tractors to make more money. They used bank loans to buy the land and tractors, because they thought they would make enough money to pay the banks back quickly. When the war ended, the food prices went back down again, so the farmers had to take more and more loans to pay for all the land and equipment they had bought. No one thought this was a problem, as long as the farmers kept growing crops and making enough money to pay the banks for their loans.
Gas-powered farming equipment cut the labor required for farming in half. This meant more acres could be farmed, but fewer farmers were needed (OHS Collections).
The Stock Market Crash and the Dust Bowl
In 1929, the New York Stock Market crashed. Everyone had been buying stocks on credit and not using real money. When people and banks started asking for the money they had loaned to be paid, no one had enough money. There were whole countries that went bankrupt when their loans were called in! Now, no one in the stock market had money, which meant none of the banks had money. This meant that people who deposited their savings in banks could not get any of their money back. It was all lost.
A "Black Blizzard" or Dust Storm in the Panhandle. Taken April 11, 1935, Texhoma, Oklahoma (OHS Collections).
Political Decisions
Hoover did take action to intervene in the economy, but by that point it was too late. Hoover dramatically increased government spending for relief, allocating millions of dollars to wheat and cotton farmers. Within a month of the crash, Hoover met with key business leaders to urge them to keep wages high, even though prices and profits were falling.
The greatest mistake of the Hoover administration was the passage of the Smoot-Hawley Tariff in 1930. It was meant to promote more spending on American-made products in the United States but eventually led to an international trade war.
President Herbert Hoover (image courtesy of the Library of Congress).
FAQs
Although Oklahoma agriculture had been in the doldrums for a decade, signs of the Great Depression emerged only in 1930 as a drought hit the region. This coincided with the opening of the East Texas oil field, which created a petroleum glut and caused rapidly falling oil prices and extensive layoffs.
What caused the Great Depression in history? ›
The beginning ofAmerica's "Great Depression" is often cited as the dramatic crash of the stock market on "Black Thursday," October 24, 1929 when 16 million shares of stock were quickly sold by panicking investors who had lost faith in the American economy.
What event historically triggered the Great Depression? ›
The U.S. stock market crash of 1929, an economic downturn in Germany, and financial difficulties in France and Great Britain all coincided to cause a global financial crisis.
What caused overproduction in the Great Depression? ›
The Causes of the Great Depression Overproduction: The 1920s witnessed a rapid economic expansion, as manufacturers made and sold new products like cars, radios, and refrigerators. Many consumers lacked the money to buy these goods. Manufacturers were soon producing more goods than they could sell.
Did the Dust Bowl cause the Great Depression? ›
The resulting agricultural depression contributed to the Great Depression's bank closures, business losses, increased unemployment, and other physical and emotional hardships.
How did banks cause the Great Depression? ›
In all, 9,000 banks failed--taking with them $7 billion in depositors' assets. And in the 1930s there was no such thing as deposit insurance--this was a New Deal reform. When a bank failed the depositors were simply left without a penny. The life savings of millions of Americans were wiped out by the bank failures.
How did the depression influence American culture? ›
American culture in the 1930s revolved around the struggles of the Great Depression. Though unemployment and poverty were widespread, 1930s culture thrived thanks to artists and scientists. Jazz and swing music became quite popular during the Great Depression, as people used the music to escape their hardships.
Which of the following contributed most to causing the Great Depression? ›
The lack of regulation on speculation in the stock and real estate markets, leading to the 1929 stock market crash, contributed most to causing the Great Depression.
What are the main causes of the Great Depression Quizlet? ›
- #1. Stock Market Crash. -Throughout the 1920s, people invested in the stock market in hopes of making money. ...
- #2. Banking Crisis. -People deposit money in banks for safe-keeping. ...
- #3. Overproduction. -Industry thrived in the 1920s because of mass production. ...
- #4. Under-consumption. -By 1929 the buying spree began to end.
Among the suggested causes of the Great Depression are: the stock market crash of 1929; the collapse of world trade due to the Smoot-Hawley Tariff; government policies; bank failures and panics; and the collapse of the money supply.
Mobilizing the economy for world war finally cured the depression. Millions of men and women joined the armed forces, and even larger numbers went to work in well-paying defense jobs. World War Two affected the world and the United States profoundly; it continues to influence us even today.
Who got rich during the Great Depression? ›
Howard Hughes grew up rich and got even richer during the Great Depression. In fact, the seeds of his eventual billion-dollar aerospace and defense empire were sown during this time.
What was one factor that led to the Great Depression? ›
The causes of the Great Depression included the stock market crash of 1929, bank failures, and a drought that lasted throughout the 1930s. During this time, the nation faced high unemployment, people lost their homes and possessions, and nearly half of American banks closed.
What started the Great Depression? ›
The stock market crash of 1929.
Once prices began their inevitable decline in October 1929, millions of overextended shareholders fell into a panic and rushed to liquidate their holdings, exacerbating the decline and engendering further panic.
What president was responsible for the Great Depression? ›
Billions of dollars were lost, and thousands of investors were ruined. After the stock market crash, President Hoover sought to prevent panic from spreading throughout the economy. In November, he summoned business leaders to the White House and secured promises from them to maintain wages.
What were the best investments during the Great Depression? ›
The best performing investments during the Depression were government bonds (many corporations stopped paying interest on their bonds) and annuities.
What stopped the dust bowl? ›
In the fall of 1939, after nearly a decade of dirt and dust, the drought ended when regular rainfall finally returned to the region. The government still encouraged continuing the use of conservation methods to protect the Plains' soil and ecology.
How did farmers survive the Great Depression? ›
Farm Families and the Great Depression
Farmers could grow their own food in large gardens and raise livestock to provide meat. Chickens supplied both meat and eggs, while dairy cows produced milk and cream. Many women had sewing skills and began producing much of their family's clothing.
Did anyone do well in the Great Depression? ›
Not everyone, however, lost money during the worst economic downturn in American history. Business titans such as William Boeing and Walter Chrysler actually grew their fortunes during the Great Depression.
Where did all the money go during the Great Depression? ›
The depressed economy caused many banks (especially small banks) to go bankrupt. At that time there was no deposit insurance, so many people withdrew their deposits from banks and kept their money as currency. Many bank runs occurred, as depositors were wary of bankruptcy.
Many economists and historians believe that the Great Depression could have been avoided, or at least mitigated, with better policy decisions and quicker government actions. Some economic downturns were inevitable due to excessive stock market speculation and consumer overspending. How did the Great Depression end?
What will eventually pull America out of the Great Depression? ›
Mobilizing the economy for world war finally cured the depression. Millions of men and women joined the armed forces, and even larger numbers went to work in well-paying defense jobs.
What was eaten during the Great Depression? ›
Celery soup mixed with tuna fish and mashed potatoes. A salad of corned beef, gelatin and canned peas. Baked onion stuffed with peanut butter. Those are just some of the recipes Americans turned to during the Great Depression, when many families struggled to eat enough nutritious food.
What ended the Great Depression? ›
The common view among economic historians is that the Great Depression ended with the advent of World War II.
Did the gold standard cause the Great Depression? ›
A number of complex factors helped to create the conditions necessary for the Great Depression—adherence to the gold standard was just one of those factors.
What signaled the beginning of the Great Depression? ›
The stock market crash of October 1929 signaled the beginning of the Great Depression. By 1933, unemployment was at 25 percent and more than 5,000 banks had gone out of business.
