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9. 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.
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