Great Depression Essay

819 words - 3 pages

What caused the Great Depression?

There are many down falls in America's economy, but there is one that over powers them all - The Great Depression. After Black Tuesday, the U.S went into an economic crisis known as the Great Depression. (Doc. D) The period preceding the depression saw stocks traded on the New York Stock Exchange on new highs. (B.E) However during the depression the political, economic, and social institutions in the U.S were in bad condition. The immediate cause of the Great Depression was the stock market crash of 1929. Other causes of the great depression include over speculation and investment buying, overproduction and international payment problems.

Buying on credit was a huge problem in the 1920s. Since the 20s was a period of great economic boom, not many people took the future into consideration. Many people bought refrigerators, cars, furniture and radios with money that they did not have. This system was called installment buying. (Doc. H) With this system, people could make a monthly, weekly, or yearly payment on an item that they wanted or needed. This happened until Black Tuesday, when the stock market crashed. (Doc. D) People also bought stocks on margin, which was like installment buying. People could buy stocks for only a 10% down payment. (Doc. G) The buyer would hold the stock until the price rose and then sell it for a profit. As long as the stock prices kept going up, the system worked. However, during 1928 and 1929, the prices of many stocks went up faster than the value of the companies the stocks represented. When many lost their jobs, they could not pay back the debts they had incurred.

The American farms and factories produced large amounts of goods and products during the prosperity before the Depression. As soon as the depression hit and people lost jobs, they stopped buying products because they did not have enough money. But factories and farms still continued to produce at the same rate. Since consumers were buying fewer products, factories cut down production. To do this, they laid off more and more workers. These unemployed workers didn't have money to buy anything, so the factories continued to lay off people. (Doc. M) This trend continued in a downward spiral until twenty-five per cent of the population was unemployed. (Doc. E) Farmers were greatly affected by this cut in demand. To sell off their produce, they cut down profits to the extent that it was almost negligible. This...

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