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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.


14.0 - Introduction
14.1 Republican Ascendancy and World Politics
14.2 The Washington Conference
14.3 Republicanism at Home
14.4 Panic of 1929
14.5 Causes
14.6 Methods to alleviate the effects of Depression
14.7 The Effects of the New Deal
14.8 Impact of Great Depression
14.9 Dates & Events
14.10 Points to Remember

Chapter 15


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