Causes of the Great Depression

The Great Depression lasted from 1929 to 1933 and was the most severe economic depression the world had ever experienced. It began with the stock market crash in the USA on 24 October 1929, or Black Thursday as it became known, and rapidly spread around the world.

The Great Depression must be seen in perspective. First of all, although it started in the USA, the entire world suffered and one can even call it the Great World Depression. Secondly, it was not the first depression. Especially the USA went through some nasty depressions. Ironically, it is especially the previous depressions, or the euphoria the Government had with it and the obsession it developed to ensure that the USA would not go through a depression again, that paved the way for the Great Depression.

The Government went so far as to establish a special Government Agency which sole purpose was to prevent any future depressions and their associated problems, such as bank panics. This agency was the Federal Reserve Board and it was to be the loaner of last resorts for banks in order to prevent collapses as had happened during earlier depressions. The Federal Reserve Board was created in 1913. 

One must be open minded; the establishing of the Federal Reserve Board was a genuine effort from the Government to do something positive and it did do a good job. It was also the big banks who wanted government protection and bailouts and were more than willing to endure a little government regulation in return.  The Federal Reserve Board was staffed with people from the banking and financial industry and it was a watchdog over the same industry. Throughout the years preceding the Stock Market crash, the Federal Reserve Board did just that and a good job for that matter.  Unfortunately, the Federal Reserve Board started off on the wrong foot by setting interest rates below market and low reserve requirements which favoured the big banks.  Initially it did have the right results and the economy started to bloom again. The money supply actual increased by about 60% during this time.  The phrase "buying on margin" entered the American vocabulary at this time as more and more Americans over-extended themselves to take advantage of the soaring stock market.

Rapidly the economy started to bloom and everyone shared in the superficial wealth created by the measures of the Federal Reserve Board. They even talked about the “roaring twenties”. The "roaring twenties" was an era when the economy prospered tremendously. The USA’s total realized income rose from $74.3 billion in 1923 to $89 billion in 1929. Unfortunately, it was also the start of the growing of the gap between rich and poor where the rich got richer and poor got poorer.

A major reason for this large and growing gap between the rich and the poor people was the increased manufacturing output throughout this period. From 1923-1929 the average output per worker increased 32% in manufacturing. During that same period of time average wages for manufacturing jobs increased only 8%. As production costs fell quickly, wages rose slowly, and prices remained constant, the bulk benefit of the increased productivity went into corporate profits. In fact, from 1923-1929 corporate profits rose 62% and dividends rose 65%.

The Federal Government also contributed to the growing gap between the rich and poor. Government clearly favoured business, and as a result the wealthy who invested in these businesses just got richer and richer.
May be all could have been safe for the economy was it not for another factor namely the First World War. The global economy was in trouble at the time as a result of the expenses caused by the First World War. It must be borne in mind that the USA was not directly involved in the War and therefore there was gap between him and his allies. They did not realise the economic problems his allies had.  Meanwhile, the USA’s economy was prospering and production capabilities were at an all-time high, but there was no corresponding demand for the products manufactured – the rest of the world could not afford the luxury of importing goods. This forced production, jobs and international trade to shrink.


Big business in the USA started to panic followed by the Federal Reserve Board. It was in 1929 that the Federal Reserve Board realized that it could not sustain its current policy.  When it started to raise interest rates, the wheels got off the cart and it heralded in the Great Depression.  The Great Depression began in October 1929, when the stock market in the United States dropped rapidly. Thousands of investors lost large sums of money and many were wiped out, lost everything. The Great Depression was the worst economic slump ever in U.S. history, and one which spread to virtually the entire industrialized world. The depression lasted for about a decade

Unfortunately, another black period in the history of mankind had to happen to set everything in motion for the Great Depression to end. It was the beginning of the Second World War as all nations increased their production of war materials. This increased production, provided jobs and put large amounts of money back into circulation. Gradually the economy of the world picked up and slowly the world emerged from greatest depression ever.

How to Remove a Ring From a Swollen Finger
Who Was The Quiet American?