What led up to the Great Depression?

Answer 1

World War II

Correction:

The great depression has nothing to do with the 2nd world war. The 2nd world war was a European war, but America entered the war to establish globalisation ,that is the wilsonian world order, and to stop USSR from spreading its Doctrine so that it would be the leader of the world.

Answer 2

Even with favorable economic conditions in the twenties, major defects soon appeared. Some large industries were not as successful as they appeared. Furthermore, many farmers were producing more than they could sell, and as food prices fell, farmers realized lower profits. Competition from foreign countries complicated matters. The United States foreign trade program was also unhealthy. Foreign exports exceeded imports, but loans from foreign countries were accepted as payment for goods purchased from the United States. A problem with credit was apparent. People who could not afford products began buying them on credit. However, without available credit, customer purchases were curtailed; and products were not sold. A decrease in customer buying led to unemployment. More and more economists were aware that the prosperity was artificial. In addition, stock prices increased with speculative buying rather than with cash.

Answer 3

Throughout the 1920's, new industries and new methods of production led to prosperity in America. America was able to use its great supply of raw materials to produce steel, chemicals, glass, and machinery that became the foundation of an enormous boom in consumer goods (Samuelson, 2). Many US citizens invested on the stock market, speculating to make a quick profit. This great prosperity ended in October 1929. People began to fear that the boom was going to end, the Stock Market crashed, the economy collapsed and the United States entered a long depression.

The Great Depression of the thirties remains the most important economic event in American history. It caused enormous hardship for tens of millions of people and the failure of a large fraction of the nation's banks, businesses, and farms. The stock market crash in October 1929 is believed to be the immediate cause of the Great Depression, but there were many other factors and long-term causes that developed in the years prior to the depression.

The 1920's may have been prosperous for some Americans, but the growing prosperity was actually weakening the economy. Many US citizens were never participating in the boom from the start. There were some wealthy individuals, but 60% of people were living below the poverty line. The coal mining industry had expanded greatly, creating many jobs, but with the introduction of oil and gas, the production of coal was decreased along with the amount of jobs. The United Mine Workers Union's membership fell from 500,000 in 1920 to 75,000 in 1928 (Temin, 33). The cotton industry experienced similar unemployment problems. In the agricultural industry, an increase in production was met with a decrease in demand, so farmers also became unemployed. The American farms and factories produced large amounts of goods and products during the prosperity before the Depression.

On average, people's wages stayed the same even as prices for these goods soared. The factories and farms still continued to produce at the same rate, but demand for their products was decreasing. As a result, more and more workers became unemployed, until 25% of the population was out of work. The American Federation of Labor fell from 5.1 million in 1920 to 3.4 million in 1929 (Temin, 68). All of these groups, being poorer than the rest of the country, could not afford to participate in the boom of the 1920's. There was a major unequal distribution of income that led to the richest 1% of Americans owning approximately 40% of the country's wealth (Matthews, 2). The country entered the 1920's with Warren G. Harding as president. Harding was a Republican as well as a laissez-faire capitalist who advocated policies which reduced taxes and regulation, allowed monopolies to form, and allowed the inequality of wealth and income to reach record levels (Tanner, 3). Harding died in 1923 and Calvin Coolidge continued Harding's policies of minimal government intervention in the economy and in business. Under Coolidge, the stock market began its "artificial" five year rise, the top tax rate was lowered to 25%, and the Supreme Court made an important ruling which further limited government control over monopolies (Tanner, 8).

In the 1920's more people invested in the stock market than ever before. Between May 1928 and September 1929, the average prices of stocks rose 40 percent. Stock prices rose so quickly that at the end of the decade, some people became rich overnight by buying and selling stocks (Matthews, 3). People could buy stocks for only a 10% down payment. Between 1920 and 1929 the number of shareowners rose from 4 million to 20 million (Temin, 45). With artificially low interest rates and a booming economy, people and companies invested in over-priced stocks. During 1928 and 1929, the prices of many stocks went up faster than the value of the companies the stocks represented. "It was like pouring gasoline onto a fire-the flames rose up, no lasting fuel was added, but the economy sure looked great" (Matthews, 3).

Buying on credit was huge problem in the 1920's. Since the 20's was a period of great economic boom, not many people took the future into consideration. Many people bought expensive luxury items using money they did not have. Installment buying allowed people to make a monthly, weekly, or yearly payment on an item that they wanted or needed. Buying on credit and installment buying left millions of people in debt. Installment buying allowed lenders to repossess an item if the borrower missed just one payment. People may have stopped making new purchases to reduce the risk of losing things they already had bought on credit. There was a big drop in consumer spending, which lowered prices, which meant that farmers, businesses, and nations could not repay their debts.

Rising debt led to restrictions on new loans, which led to scarce credit, less borrowing, lower prices, more bankruptcies, and so on (Samuelson, 1). The spiral downward of trade, investment, people's confidence, and the economy began. Many economists agree that the Great Depression began with the Stock Market Crash in October of 1929. Stock values plummeted, stockholders were wiped out, banks and factories shut down, and millions of Americans were left jobless and penniless. Although the Stock Market Crash in October of 1929 certainly began the Great Depression, there were many events that led to the gradual decline of the economy. During the prosperous 1920's, bank failures, together with low incomes among farmers and factory workers, helped set the stage for the depression. Uneven distribution of income among workers also contributed to the slump.

The 1920's were a prosperous period for business, but most farmers did not prosper. Prices of farm product fell about 40 % in 1920 and 1921, and they remained low through the 1920's (Tanner, 3). Some farmers lost so much money they could not pay the mortgage on their farm and were forced to rent their land or move. Bank failures in the agricultural areas became more frequent. About 550 banks went out of business from July 1, 1928 to June 30, 1929, the period of greatest prosperity in the 1920's (Temin, 58). Workers in the coal, railroad, and textile industry did not share in the prosperity either. Industrial production increased 50 %, but workers could not buy goods as fast as the industry produced them because their wages were low. Workers reduced their spending to hold down their debts, the amount of money in circulation decreased, and business became even worse. The Stock Market Crash was an immediate cause of the Great Depression, but there were many long-term causes that gradually weakened the economy.

Answer 4

Some of the problems that led up to the great depression was the farming crisis which was cause by the farmers producing more than needed fir WWI and they couldn't pay their bills and mortgages. The dust bowl also had a huge effect by making farm lands unusable. Some othe issues were credit and buying on margin. People had the power to use credit and buy more than they needed and not have to pay with cash which ended up in them spending more money than they could pay to the bank. Which led to the banks not having money due to the excessive amount of spending. Big businesses had a huge effect to because they controlled the market and advertising. They ran smaller businesses that were local and means of life to people out of buisness which hurt a large population of the Americans. The stock market was at a High point in the twenties but when people started to take their money out of the bank in 1929 in fear of loosing it all. the banks had alot of people flooding in demanding hundreds and thousands of dollars that the bank couldn't provide all at once to every single one of them. They all favored Hoover because in the Twenties they favored republicans due to their success and the " If it ain't broken don't fix it saying." so when it all went down hill they blamed him for it.

Answer 5

1. Unequal distribution of wealth. There was not a large middle class. While wages were rising for the majority of workers, they were not keeping pace with the increase in the cost of living or the wealth in the hands of the industrialists and others in the upper income classes.

2. There was over speculation in the Stock Market, which was not regulated.

Many Americans purchased stock on credit. This was known as margin buying.

3. Increased manufacturing and agricultural output, but wages that did not keep pace for the consumers to purchase all that was produced or grown. Hence, inventories increased and agricultural income remained low.

4. Buying on credit, known in the 1920s as installment buying. People purchased things like refrigerators on time, and did not have money to pay for the product in the future, when the bills became due.

5. Federal regulations on businesses also contributed to the cause. Especially favorable to the large corporations were the taxes laws which were written

to encourage business expansion.

6. Banks were permitted to speculate in land and the stock market with little

government regulations.

7. High tariffs and war debts helped spread the depression world wide.

8. The Stock Market Crash of 1929 signaled the beginning of the Great Depression.

Historians agree that there is no one cause. or even a major cause, of the Great Depression. There are several causes that do appear near the top on any one's list of causes for the Depression.

1. No regulation of the Stock Market and the practice of buying stocks on margin.

2. Bank failures and no regulation of banking policies with consumer's money.

3. Over production in industry caused a large inventory.

4. Reduction in purchasing power of the consumer.

5. Foreign economic conditions.