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What Caused the Great Depression?

During the 1920s in America, people tried their hardest to reach prosperity, they believed in having a nice house, a good job and money for food, but also there were dreams of buying consumer goods. During the economic boom, many people started investing in the stock market, and many earned a lot of money this way. It soon became very successful, and lots of people started joining the stock exchange.  Although this all took place, there still was a lot of suffering, namely farmers producing surplus supplies of crops and the problem of poverty. Soon, the whole stock market broke down, and therefore the great depression began. In this essay, I will explain what factors caused the great depression in detail and come to a conclusion about this and which factor was most important. The main factors were speculation in the stock market, Trade problems, farming problems and Poverty.

Answer. The great depression was started by many factors, some long term and some short term. These factors are illustrated below. Firstly there was the factor of Poverty, where there was an unequal distribution of money to different people. The richest people in America got most of the money in America; they got over one-third of the personal income. The poor 42% got not even one-tenth of the income. So as the wealthy got wealthier, the poor in the country just got poorer. Companies were taking money from the economy but not rewarding it to their workers, but spending it. The market soon became a little bankrupt because there was a small market for luxury goods such as radios, cars, and vacuum cleaners, mostly because of the poor not in America. 60% of Americans earned less than $2000, the minimum wage for the bare necessities of life.

When the market started losing money and got fewer buyers, the companies were forced to reduce production, and by doing this, they had to lay off some of their workers, causing unemployment. There was also the factor of farming in the United States. Farmers were encouraged to produce a lot of healthy and high-quality food in the twenties, very fast. This had advantages, to begin with, because farmers then had combine harvesters and had much bigger pieces of land. They also had tractors and a lot of materials needed. The farmers then became too efficient, they flooded the market with their produce, and they had produced far more food than America could eat. They created a lot of surplus food. The farmers had to sell their goods, so they lowered the price; as there was so much food, many of the prices became too low. Farmers did not make any profit anymore. There was too much food on the market. As the farmers did not get any money anymore, they became part of the earlier poverty issue. They became come of the 42% who only got 10% of the money. Farmers tried borrowing money from banks for mortgages, but they took their land when they couldn’t pay it back.

There was the factor of Trade problems. Tariffs were put up in the country, preventing any foreign goods from coming into America cheaply. This was very good for companies, as people realised it was cheaper to buy goods from American stores rather than abroad. The only problem was that there were more and more crops developing in America. The only way to get rid of these was to sell them to other countries. The only problem was that other countries also put up these tariffs to save their own economy, so American business people found it hard to export into Britain. This really affected farmers, as there was still a lot of surplus food with little value. Companies were also affected as some of their money came from exporting. Because of the new tariffs, they had to close down some production lines.

The last factor affecting the great depression was the biggest one. It was speculation on the market. This factor brought the crisis of the Wall Street crash. About one million people were investing in companies shares in the late twenties. Speculation was the art of buying shares “on the margin” and then waiting for them to rise in price and then sell them for a profit. This created problems because people bought shares with borrowed money. For instance, one person would buy another’s shares using credits; that person now would sell the shares to another person who pays with them with borrowed money. The second person would not pay the first back. It all operated from banks, which were willing to loan money. These credit systems worked fine until some investors wanted to sell shares and not buy, and also wanted to sell for money, not credits. Many companies began to lose the number of shares sold and also lose profit on the stock market. Most rich investors began to sell shares because of thinking they were too high. In October 1929, everybody sold shares, and the Wall Street stock exchange lost many share prices. The whole of the market crashed, and many people were declared bankrupt, worsening the problem of Poverty.

Conclusion. Four factors accounted for the Great Depression. They were Poverty, Farmers, Trade and Speculation. Speculation was the main problem that led to the great depression because many people started to sell their shares, and there was a lot of unpaid borrowed money. As people started to get into the trend of selling all of their shares for money, all of the stock market at Wall Street crashed, so many people were declared bankrupt. There was a lot of panic, and most companies failed and had to close down. It really did cause the base for the great depression. With many people in poverty and the death of many companies, there was a great start to the depression.

Secondly, poverty was also important, but this led to speculation because many people started living in poverty. This was second most important, leading to many job losses and companies cutting production lines. Also, many unemployment occurred because of this, and so there was a depression of not money for food and to live. The third most important factor was farming because farmers had a lot of surplus food available, which was too much for America. They joined the poverty when the food became worthless in value, which meant that they were also linked with the second factor. America had too much food, and so farmers lost their jobs.

The final point/ factor is trade. This was when tariffs were implied to America, which actually helped it, although when put up in other countries, it actually did not let the surplus food get sold to other countries. This did not really affect anyone directly, as the export of food would have only been helpful. The most important factor, I thought, was Speculation, although I had some doubts about poverty. However, the fact remains that without speculation and the Wall Street crash, the great depression would not have started because many people were still rich and had a lot of money in the stock exchange.

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What Caused the Great Depression?. (2021, Aug 17). Retrieved September 16, 2021, from