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PinkMonkey Online Study Guide-World History
14. 5 Causes
Several explanations and reasons are offered for
the Great Depression of 1929. But the main causes that led to the
Depression in America were:
Over Production
The International Chamber of Commerce places the
blame on overproduction. The over expansion in industry, especially
in the automobile industry, and agriculture caused a fall in prices.
Surplus goods piled up, having an adverse effect on the economy.
Credit Policies
Another factor that led to Depression was the misuse
of credit. The National Association of Manufacturers confirms this.
The imbalance in the economy was mainly because of easy credit policies.
Money was readily available and cheap. In 1927, the federal Reserve
Board eased restrictions on credit. This resulted in the increase
of installment buying and uncontrolled speculation.
An unequal distribution of Purchasing Power
Governor Roosevelt's remarks explain this phenomenon:
"Our basic trouble was not an insufficiency of capital. It was an
insufficient distribution of buying power. While wages rose in many
of our industries, they did not rise proportionately to the reward
to capital." For instance, 12 top executives in the tobacco industry
received a salary equal to the gross income of 30,000 tobacco farmers.
A more equitable distribution of earnings could have helped in an
increased purchasing power. Charles G. Ross put it thus: "The wealth
created by the machine has gone, in appalling proportion, to the
owners of the machine."
Decline in International Trade
The imbalance in American economy was further increased
due to the problems in foreign trade. Exports from the U.S. to Europe
exceeded imports. Moreover, American loans and investments largely
financed the exports. Several economists felt that finally American
loans would have to stop and Europe could have repaid its debts
only by exporting her goods. High U.S. tariffs prevented this. This,
in turn, reduced America's exports to Europe. High tariff was one
of the main reasons for the crash of 1929.
Meanwhile, farm prices began to fall and hit rock
bottom. John Steinbeck depicts the agony caused to the small farmers
who lost their lands in the moving novel, The Grapes of Wrath. The
fall in farm prices, coupled with the stock market crash, impoverished
a great number of people. The Depression was a traumatic experience
for Americans.
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