What Led to the Depression

The main factors which caused the Great Depression in America following the Wall Street Crash of 1929. Discusses issues with the 1920s American economy.

View mindmap
  • What Led to the Depression
    • Unequal distribution of wealth
      • 60% of all American families were living on less than $2000 per year
      • The top 5% of Americans earned 1/3 of the income
      • The only way that poorer Americans could consume was by credit and consumption
      • 80% of Americans had no savings at all
      • The purchasing power was held by the top margins of society
    • Farming problems
      • The average farmer's income was $477 below the national average
      • Crops were devastated by natural disasters, for example the boll weevil plague
      • Farmers did not cut production after the First World War, leading to overproduction and lowering prices
      • Out of 5280 farms, there were 3500 foreclosures
      • Farmers did not participate in the boom
    • Decline in old industries
      • Traditional industries such as coal and textiles couldn't compete with the oil industry
      • The New England Textiles industry fell in workforce from 190,000 to 100,000 in 1933
    • Trade problems
      • Republican protectionism led to the raising of taxes and retaliation, effectively cutting off international trade
      • Production rises meant that surplus couldn't be sold abroad
      • Surplus agricultural produce couldn't be sold abroad
        • Farmers did not cut production after the First World War, leading to overproduction and lowering prices
    • Stock market speculation and lack of regluation
      • The American banking system was not regulated at all
      • The stock market was not regulated, encouraging 'on the margin' speculation (75% of a share's value could be borrowed)
      • After 1927, there was an average of 5m transactions per day
      • In 1927, the FRB lowered the interest rate by 0.5% making it easier to borrow
      • People had blind faith in the market (dips were seen as temporary)
      • Brokers had persuasive selling techniques e.g. 'rags to riches' tales
      • FTC was half-hearted at best
      • Bank failures were common during the 1920s
      • Contradictory regulatory measures: Charles Mitchell pumped $25m of his own money into the brokerage industry
      • No one wanted regulation of the stock market
      • FRB was made up of private bankers who put their own interests before the nation
      • Evaluation points
        • After the Crash, stock prices were still higher than they had been in 1928
        • Share prices did not plummet until 1932
        • Historians argue that the Crash was symptom, rather than a cause, of the Depression
        • There were already problems with the economy
    • International debt
      • Great Britain and France did not have strong enough economies to pay back the war debts owed to the US
      • The devaluation of British and French currencies made US goods more expensive in Europe


No comments have yet been made

Similar History resources:

See all History resources »See all America - 19th and 20th century resources »