Causes of the Great Depression

The 1920s economic boom is largely responsible for the Great Depression. The post-World War I era saw unprecedented economic growth in the United States, characterized by a surge in industrial production, technological advancements, and a stock market boom. However, beneath this apparent prosperity lay fundamental weaknesses that would later contribute to the collapse.

One major factor was the overreliance on credit and speculation. Easy access to credit and the proliferation of instalment buying fueled excessive consumer spending, leading to a bubble in the stock market. The stock prices soared to unsustainable levels, detached from the actual value of the companies. When the bubble burst in October 1929, it triggered a cascading series of events that would define the Great Depression.

• Economic Boom of the 1920s: Following World War I, the US saw unheard-of levels of economic expansion. Progress in technology and industrial output blossomed, adding to the overall feeling of affluence.
• Over Reliance on Credit and Speculation: Excessive consumer spending was encouraged by easy access to credit and instalment purchasing. Stock market speculation caused prices of equities to rise beyond the true worth of the company.
• Stock Market Crash (Black Tuesday, October 29, 1929): A sharp drop in stock prices was caused by the speculative bubble popping. Many investors lost everything they had invested when billions of dollars were lost.
• Economic Contraction: Following the stock market meltdown, consumer demand and company investment fell precipitously. The result of decreased output and mass layoffs was a serious economic crisis.
• Bank Failures and Banking System Collapse: Bank runs and large withdrawals followed the panic that swept across the financial industry. The economic crisis worsened as thousands of banks closed owing to insolvency.
• Global impact: The global economic downturn spread swiftly due to the interdependence of the entire economy. Trade between nations declined, which hurt export-dependent nations’ economies.
• Unemployment and Social Consequences: Businesses slashed employment in reaction to decreased demand, which caused unemployment to soar. Families experienced social unrest, homelessness, and poverty, which had a long-lasting effect on society.
• Government Responses: In the U.S., President Franklin D. Roosevelt’s New Deal aimed at providing relief, recovery, and reform. Internationally, countries adopted various approaches, ranging from political upheaval to Keynesian economic policies.

Great Depression, spanning from 1929 to 1945, was one of the most severe economic downturns in modern history. Its effects began in the US and expanded throughout the world, causing widespread unemployment, poverty, and social unrest. A complex interaction of social, political, and economic forces formed this era, changing the path of history and the paths taken by individual nations.

In this article, we will read about the Great Depression (1929-1945), its causes, its effect on the global economy, and much more.