What Caused Great Depression

The

Submitted by: Kashif Shaikh Reg. #: 29963 Dated: 24th August 2012

What Caused The Great Depression

Brief overview of The Great Depression

The "Great Depression" was a severe, world-wide economic disintegration symbolized in the United States by the stock market crash on "Black Thursday", October 24, 1929. Great Depression was the worldwide economic downturn that began in 1929 and lasted until about 1939. It was the longest and most severe depression ever experienced by the industrialized Western world. Although the Depression originated in the United States, it resulted in drastic declines in output, severe unemployment, and acute deflation in almost every country of the globe. But its social and cultural effects were no less staggering, especially in the United States, where the Great Depression ranks second only to the Civil War as the gravest crisis in American history. Between the peak and the trough of the downturn, industrial production in the United States declined 47 percent and real GDP fell 30 percent. The wholesale price index declined 33 percent (such declines in the price level are referred to as deflation). Although there is some debate about the reliability of the statistics, it is widely agreed that the unemployment rate exceeded 20 percent at its highest point. The severity of these declines becomes especially clear when they are compared with Americas next worst recession of the 20th century, that of 198182, when real GDP declined just 2 percent and the unemployment rate peaked at under 10 percent

Causes of Great Depression

There is no single cause or obvious set of factors that can explain why the depression occurred. Historians, economists and political scientists have come up with various explanations that place different emphasis on different factors and events. One thing seems clear, however, that the depression was the result of the interaction of a complex set of factors, some economical, some political and some social. Few of the major causes of great depression are as follows; - Unequal Distribution of Wealth - High Tariffs and War Debts - Overproduction in Industry and Agriculture - 1928 Presidential Election - Farm Crisis - Federal Reserve Monitory Policy - Stock Market Crash and Financial Panic Unequal Distribution of Wealth - The gap between rich and poor widened - The wealthiest 1% saw their income rise 75% - The rest of the population saw an increase of only 9% - More than 70% of American families earned less than $2500 per year - 80% of Americans has no savings at all High Tariffs and War Debts - At the end of World War I, European nations owed over $10 billion ($115 billion in 2002) to their former ally, the United States. Their economies had been devastated by war and they had no way of paying the money back.

What Caused The Great Depression The U.S. insisted their former allies to pay the money. All of this later led to financial crisis when Europe could not purchase goods from the U.S. In 1922, the U.S. passed the Fordney-Mc Cumber Act, which instituted high tariffs on industrial products. Other nations soon retaliated & world trade declined helping bring on the great depression.

Overproduction in Industry and Agriculture - By the late 1920s, American consumers were buying less - Rising prices, stagnant wages and overbuying on credit were to blame - Most people did not have the money to buy the flood of goods factories produced - The surplus products could not be sold overseas due to high tariffs and lack of money in Europe. 1928 Presidential Election - Republican Herbert Hoover ran against Democrat Alfred E. Smith in the 1928 election - Hoover emphasized years of prosperity under Republican administrations - Hoover won an overwhelming victory - Hoover signed the tariff bill in June of 1930, with the signing of the tariff, many other nations attempted to counteract it by new or altered quotas on U.S. exports and/or by sharply rising tariffs on commodities exported out of the United States. - The Smoot-Hawley tariff and retaliatory tariffs by other nations sharply altered the supplies and demands for many products, necessitating a complex and extensive set of price and resource adjustments - President Hoover, at the end of his term, blamed international forces and did not believe that the depression began in the United States Farm Crisis - No industry suffered as much as agriculture - During World War I European demand for American crops soared - After the war demand plummeted - Farmers increased production sending prices further downward - The decline in farm commodity prices following the war made it difficult for farmers to keep up with their loan payments References: http://elsa.berkeley.edu/~cromer/great_depression.pdf http://www.canbekeconomics.com/research_papers/The_Great_Depression_and_Europe.pdf http://www.slideshare.net/multimedialearningllc/causes-of-great-depression http://www.qc-econ-bba.org/instructors/Edelstein11/ECON224/07.pdf http://www.google.com.pk/url?sa=t&rct=j&q=reasons%20of%20great%20depression%201929%20ppt&source =web&cd=1&cad=rja&ved=0CB4QFjAA&url=http%3A%2F%2Fwebzoom.freewebs.com%2Fcentralhistory%2FA %2520C%252014%2520US%2520CHAPTER%252014.ppt&ei=nnQ2UMWXMMnZrQe32YCAAw&usg=AFQjCNGK Ww121ErvtBTifzumdn76iZ5ZHA