The Great Depression did not happen overnight nor can it be attributed to just one factor. There were many factors that accumulated over time that led to this difficult time in history. These factors contributed to the economy getting worse and worse until the people found themselves in what was later called “The Great Depression”.
The crash of the stock market
The beginning of the Great Depression is officially marked by the crash of the stock market in 1929. The crash itself was a result of what was called “over speculation”. Over speculation happened as people were guessing that a certain company was going to be worth much more in the future. So, many people started buying stocks in a company (or companies) causing the stocks prices to go up until the company’s value in the stock market was more than its actual value in reality. In addition, people were buying stocks with money they did not have. They were buying stocks on credit, or borrowing, from their banks.
In October 1929, the economy started to slow down. The economic slowdown caused panic among the people who invested their money in the stock market as the stock prices started to drop. Large amounts of people started to sell all of their stocks at once which ultimately led to the crash of the stock market. Many people lost everything and this crash was the catalyst for the Great Depression.
Since the beginnings of the 1920’s and years before the actual start of the Great Depression, farmers were having a very hard time. They were trying to balance their costs with the huge drop in crop prices.
The decrease in crop prices was caused by new machines that were introduced to make work easier for farmers. The new machines allowed farmers to grow and harvest more crops than ever before. While this seemed great, having more crops in the marketplace actually caused the overall price of the crops to drop significantly. In other words, more crops in the marketplace meant more competition between farmers, which forced farmers to lower their prices in order to stay competitive.
Once the Great Depression hit the country, life became ever harder for farmers. A drought that lasted until 1939 ruined most of the land by turning the soil to dust. The poor soil conditions forced many farmers to abandon their farms and move to the cities to look for work.
Failure of the banking system
At the beginning of the 1920’s, the economy was in a very good position. This encouraged companies to hire many workers into their newly built factories. However, after a little while, a problem surfaced when the factories overproduced and could not sell everything that it was making.
Many companies started losing money and, to cut their losses, they had to let many workers go. Many people found themselves without work overnight. They were joined by farmers who also came looking for work. The situation was getting worse for the entire country.
The buying behavior of the people themselves did not create a good situation. As many products were being introduced to the market like radios, washing machines, and cars, people started borrowing money from banks in order to afford all these things. Once the economy slowed down and people started losing their jobs, most of them were not able to pay their debts.
The world economy struggle
After World War I ended, European countries needed huge amounts of money to rebuild the areas that were damaged by the war. The United States provided this money and loaned the rest of the Allies billions of dollars. When the economy started to suffer all over the world, just like regular people, those countries could not pay back their debts.
Smoot-Hawley Tariff Act
The Smoot-Hawley Tariff Act was the law that put very high taxes on imported goods. Once this law was issued, it almost stopped the trade the United States had with other countries. With less imports and exports, it was inevitable that the economy started to slow.