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What Were The Main Causes Of The Great Depression Essay

All the sources that contain information about the Great Depression claim that it was the most dynamic, deepest, and longest depression. In most countries it began in 1929 and lasted until 1939. It was the most uncompromising Depression. Economic slump in North America ruined multiple lives, destroyed families and individuals.

Any essay of the Great Depression would be full of tragic facts. This one will reveal some historic true. Maybe you need some help to write a paper on this topic, or, for example, your teacher asked you to write a narrative essay about life, contact us so we will assist you.

                              

The impact of the Great Depression on society was huge. It affected people from coast to coast, the young and the old, both rich and poor countries. For the greater number of people economic crisis became permanent reality. The Great Depression started with the Stock Market Crash in 1929. History called it Black Thursday because it happened on October 24 which was Thursday. The birth of the crash gave the start to ten-year Depression.

Although many people say that the Great Depression started with the Wall Street Crash, some insist that the Depression happened not because of that bang. The economic conditions of the United States were less than satisfactory. The agricultural sector suffered greatly. Several facts explain it plainly: American farms had to expand because of the World War I to provide food for all soldiers; the second reason is that farmers mechanized their operations since the growth of work’s volume. Tractors were expensive, so farmers were into debt to finance their expansions.

One more point of view says that the Great Depression was caused by overproduction. Unsold goods piled up because people did not consume all that was produced. All these are different views, and you pick the one you like most. The facts and factors which are written above explain clearly why the Great Depression took place in the history. It happened. Nobody can change it.

Some experts call the period before the Depression (1920s) the period of prosperity. That was the age of jazz and the days of first Miss America elections, and first Oskar ceremony. People got electric washing machines, electric refrigerators, and record players. In 1937 people started watch sound movies. Even though everything looked like a new age, people faced Depression.

Money takes an important place in one’s life. People used it not carefully during the time before the Depression. Essay about money analyzes this issue clearly. This is a good question to ponder.

Once John D.Rockfeller said that depression makes people discouraged, but it is the matter that once appears and then goes away; prosperity always comes back.  Despite his words, the Wall Street was swept by panic. Each bank closed its doors. Factories began to slow down productions. An abundance number of workers were fired. Those people who were employed got small wages. Crowds of people were gathering at the Wall Street and outside the banks that failed.

The unemployment rate was super high. People stood in soup lines outside soup-kitchens. Many fired workers were wandering about the country to find any job. Some people moved from the cities to countryside. Thus, they were able to feed their families. Both the working and middle class suffered from unemployment. People were looking for new places to work. Poverty snaked into homes. This topic is rather touching. More about this theme read in poverty essay.

Many farmers lost their farms. A lot of them were evicted. Some farmers rented their land or owned land, but could not keep up the payments. It was hard time. Imagine the situation when you have no place to go. Farmers destroyed their crops. They could not afford to take it to the market for the price they got there. People stayed without food and cloth.

Some kind of agitation took place in the country. One could see shocking scenes.  Strikes and demonstrations were going on. There were picket lines. When people went on strike the police opened fire on them. Communist party was leading a struggle on workers behalf. This matter during that time made people believe that it was the only organization that was doing something about Depression.

A sort of relief brought Franklin D. Roosevelt. He became the president and a central figure of the Great Depression events. Roosevelt himself was rich, and he knew not much about lives of the poor. His wife Eleanor went to poor districts and knew how people lived. She saw the conditions of the poor. For these reasons, the understanding how people suffer came to Roosevelt through his wife. Some say that Eleanor was his eyes and ears. People were waiting for Roosevelt to do something during that severe time. This aspect is vital. Any essay about The Great Depression should mention it.

In 1932 Franklin D. Roosevelt for the first time pronounced words New Deal. Roosevelt promised to curb the dynamic effects of 1929’s crash. His New Deal was in response to the Great Depression. Franklin D. Roosevelt focused on the relief for poor and unemployed, recovery of the economy, and reform of the financial system. Even though many politicians were critical for Roosevelt’s New Deal, it made a significant shift in American politics and domestic policy. The New Deal caused the beginning of numerous social programs.

The Great Depression started in the USA but affected many countries. Australia was dependent on agricultural export as well as on industrial. Falling export caused unemployment which reached 29% in 1932. The wages were pressed by increased product prices. Despite all the hardships, gradual recovery started after 1932.

Canada was harshly affected by Depression. The industrial production fall to 58%, and unemployment reached 27% in 1933.

The Depression hit France only in 1931. Its impact was not severe. The unemployment rated no more than 5%. There was no banking crisis in France. The fall in commodity was at 20%.

The Great Depression almost did not influence China but greatly affected Greece in 1932. All attempts of the Bank of Greece to overcome the Depression failed. However, the Greek government managed to strengthen economy of the country up to the Second World War.

The economy of Latin America was highly invested by the USA. The Depression crashed it harshly. Latin America was a big product exporter to the world. It developed its economy by British and USA investments. Thus, its export industry suffered immediately and greatly. The New Deal’s example in the USA served the basis for making steps toward improved life in Latin America.

Those people who remember the time of Depression say that it was a hard time for everybody, and everyone had to compete with others.

The Great Depression was a period of unprecedented decline in economic activity. It is generally agreed to have occurred between 1929 and 1939. Although parts of the economy had begun to recover by 1936, high unemployment persisted until the Second World War.

Background To Great Depression:

  • The 1920s witnessed an economic boom in the US (typified by Ford Motor cars, which made a car within the grasp of ordinary workers for the first time). Industrial output expanded very rapidly. 
  • Sales were often promoted through buying on credit. However, by early 1929, the steam had gone out of the economy and output was beginning to fall.
  • The stock market had boomed to record levels. Price to earning ratios were above historical averages.
  • The US Agricultural sector had been in recession for many more years
  • The UK economy had been experiencing deflation and high unemployment for much of the 1920s. This was mainly due to the cost of the first world war and attempting to rejoin the Gold standard at a pre-world war 1 rate. This meant Sterling was overvalued causing lower exports and slower growth. The US tried to help the UK stay in the gold standard. That meant inflating the US economy, which contributed to the credit boom of the 1920s.

Causes of Great Depression

1. Stock Market Crash of October 1929

During September and October, a few firms posted disappointing results causing share prices to fall. On October 28th (Black Monday), the decline in prices turned into a crash has share prices fell 13%. Panic spread throughout the stock exchange as people sought to unload their shares. On Tuesday there was another collapse in prices known as 'Black Tuesday'. Although shares recovered a little in 1930, confidence had evaporated and problems spread to the rest of the financial system. Share prices would fall even more in 1932 as the depression deepened. By 1932, The stock market fell 89% from its September 1929 peak. It was at a level not seen since the nineteenth century.
  • Falling share prices caused a collapse in confidence and consumer wealth. Spending fell and the decline in confidence precipitated a desire for savers to withdraw money from their banks.
2. Bank Failures

In the first 10 months of 1930 alone, 744 US banks went bankrupt and savers lost their savings. In a desperate bid to raise money, they also tried to call in their loans before people had time to repay them. As banks went bankrupt, it only increased the demand for other savers to withdraw money from banks. Long queues of people wanting to withdraw their savings was a common sight. The authorities appeared unable to stop bank runs and the collapse in confidence in the banking system. Many agree, that it was this failure of the banking system which was the most powerful cause of economic depression.

50% fall in bank lending during the Great Depression. Period in grey - recessions.
  • Because of the banking crisis, Banks reduced lending, there was a fall in investment. People lost savings and so reduced consumer spending. The impact on economic confidence was disastrous.

Great Depression in US

Over 20% fall in US real GDP


Four consecutive years of negative growth 1929-32.

US unemployment rose from zero in 1929 to over 25% in 1932 - indicating the severity and seriousness of the decline in economic activity.

US Deflation

US price level. 1930-33 was a period of deflation (negative inflation) - fall in the price level.


Great Depression in the UK

The great depression in the UK was less severe because

There had been no boom in the 1920s (it was actually a period of low growth)

After leaving the Gold Standard in 1932, the UK economy recovered relatively well.


The UK also experienced a long period of deflation in the 1920s and 1930s. See: History of inflation

With falling output, prices began to fall. Deflation created additional problems.
  • It increased the difficulty of paying off debts taken out during the 1920s.
  • Falling prices encouraged people to hoard cash rather than spend (Keynes called this the paradox of thrift)
  • Increased real wage unemployment (workers reluctant to accept nominal wage cuts, caused real wages to rise creating additional unemployment)
Unemployment and Negative Multiplier Effect

As banks went bankrupt, consumer spending and investment fell dramatically. Output fell, unemployment rose causing a negative multiplier effect. In the 1930s, the unemployment received little relief beyond the soup kitchen. Therefore, the unemployed dramatically reduced their spending.

Global Downturn

America had lent substantial amounts to Europe and UK, to help rebuild after first world war. Therefore, there was a strong link between the US economy and the rest of the world. The US downturn soon spread to the rest of the world as America called in loans, Europe couldn't afford to pay back. This global recession was exacerbated by imposing new tariffs such as Smoot-Hawley which restricted trade further.

Different views of the Great Depression

Monetarists View

Monetarists highlight the importance of a fall in the money supply. They point out that between 1929 and 1932, the Federal Reserve allowed the money supply (Measured by M2) to fall by a third. In particular, Monetarists such as Friedman criticise the decisions of the Fed not to save banks going bankrupt. They say that because the money supply fell so much an ordinary recession turned into a major deflationary depression.

Austrian View

The Austrian school of Economists such as Hayek and Ludwig Von Mises place much of the blame on an unsustainable credit boom in the 1920s. In particular, they point to the decision to inflate the US economy to try and help the UK remain on the Gold standard at a rate which was too high. They argue after this unsustainable credit boom a recession became inevitable. The Austrian school doesn't accept the Friedman analysis that falling money supply was the main problem. They argue it was the loss of confidence in the banking system which caused the most damage.

Keynesian View

Keynes emphasised the importance of a fundamental disequilibrium in real output. He saw the Great Depression as evidence that the classical models of economics were flawed.
  • Classical economics assumed Real Output would automatically return to equilibrium (full employment levels), but the great depression showed this to be not true.
  • Keynes said the problem was lack of aggregate demand. Keynes argued passionately that governments should intervene in the economy to stimulate demand through public works scheme - higher spending and borrowing.
  • Keynes heavily criticised the UK government's decision to try balance the budget in 1930 through higher taxes and lower benefits. He said this only worsened the situation.
  • Keynes also pointed to the paradox of thrift.
Marxist View

The Marxist View saw the Great Depression as heralding the imminent collapse of global capitalism. With unemployment over 25%, Marxists held that this showed the inherent instability and failure of the capitalist model. Furthermore, they pointed to the Soviet Union as a country which was able to overcome the great depression through state-sponsored economic planning.

How important was Stock Market Crash of 1929?

The stock market crash of October 1929, was certainly a factor which precipitated events. It did cause a decline in wealth and severely affected confidence. However, changes in share prices were a reflection of the underlying boom and bust in the economy. Also, a collapse in share prices might not have caused the great depression if bank failures had been avoided. In October 1987, share prices fell by even more (22%) than black Monday. But, it didn't cause an economic recession.

Essays on the Great Depression by Ben S. Bernanke at Amazon.co.uk
Essays on the Great Depression by Ben S. Bernanke at Amazon.com