The Inevitable Causes Of The Great Depression

The 1920s in America was known as “The Roaring Twenties” due to the seemingly prosperous economy. Employment rates were high and the manufacturing of consumer goods such as cars and electrical appliances rushed out of factories. However underneath the surface, many factors took place that weakened the structure of the economy and led to the New York Stock Exchange crashing on October 29, 1929. This signaled the beginning of The Great Depression; a time period in which a severe economic recession occurred. Many people lost their jobs and all the money they had; as a result, poverty was a common factor. Homelessness, illnesses, starvation and the formation of “Hoovervilles” were all results of The Great Depression. The Great depression did not end until 1939 and the early 1940s when America started aiding producing military supplies for World War II. It is believed by many historians that the policies of republican presidents were primarily responsible for the great depression; however the lack of federal reserve regulations, overproduction of consumer products and the volatile structure of the stock market ultimately led to the collapse of America 's economy and unfolded into the Great Depression. In the early and mid 1920s, only 2% of Americans were invested in the stock market; however, that quickly changed. The rapid growth of manufacturing led to stock prices increasing and soon almost everybody was buying shares within the stock market. The stock market offered an easy way for Americans to make large amounts of money fast and safely, unfortunately it was all too good to be true. A concept known as “Buying on the Margin” was popularly practised when buying stocks. This allowed a person to only pay a small percentage of the stock, usually 10% or 20% and to borrow the rest of the money from banks by investment brokers. In addition to buying on the margin, many people were optimistic that their stock prices would rise due to the increasing share prices and the good reports of the company. This was commonly known as speculation. Since investors were able to purchase stocks at a margin of the price, their profits soared greatly when stock prices rose and they continued to buy more and more stocks with the assumption of making big profits. This ultimately resulted in the company 's stock value to be worth immensely more than it actually was, these stock prices were purely based off of people 's optimism and not their economic success. This resulted in an unstable market and couldn 't last forever. On October 24 1929, companies posted declining stock prices and many people panicked which …show more content…
The Great Depression would have occurred without these policies because the economy was already in a dangerous and weak position due to the unbalanced stock market, failure of the Federal Reserve and overproduction of goods. Speculation and buying on the margin with the stock market resulted in stock prices to be artificially high and have no true economic basis. This resulted in the imminent collapse of the stock market which led to millions of people becoming poor instantaneously. Furthermore, The Federal Reserve had the knowledge of this future crash and had the ability to prevent it by limiting the amount of money banks can loan from them by raising the interest rates. The Federal Reserve ignored the issue at hand which resulted in banks loaning money carelessly and cheaply. Speculation and buying on the margin continued to take place and led to the crash. Lastly, the overproduction of agricultural goods resulted in the supply to surpass the demand greatly. The farmers made no income and couldn 't pay their credit for new machines they loaned. They lost everything they owned and the rural banks collapsed due to no payments from the farmers. In urban areas, workers did not make enough money and could not afford to pay for consumer goods. The multiplier effect soon took place and many employees were laid off and companies went out of order due to not receiving income. All of these factors together put America 's economy in a fragile state that it couldn 't handle for long. Eventually the economical structure couldn 't handle the load anymore and collapsed, resulting in the decade long Great depression which changed every Americans