Causes of the Great Depression

On Black Monday in 1929 the Stock Market on Wall Street crashed, incurring a large amount of monetary loss to those who invested in the stock market. Though a devastating financial loss to investors, the crash brought on a worse period known as the Great Depression. Often the Great Depression is thought to be one in the same with the Stock Market crash, though the crash was only the last in a long line of events that allowed the Great Depression to be as overwhelming as it was not only for those who lost money in its crash, but the entire world's economy that suffered and allowed for the Second World War.

During the 1920s an increase in consumer spending led to a false sense of affluence. The American people became over-dependent on consumer products, like refrigerators and automobiles. Consumer buying was made easier due to buying on margin, where someone could put money down on credit in order to buy an item, such as a washing machine, that they could not really afford to buy. This large consumer spending overshadowed the large gap between the middle class and the impoverished lower class. Poverty struck over half of the population, and inflation led Americans in a false sense of a wage-increase.

After banking and federal loans that led to speculation brought the Stock Market Crash, there was a mass frenzy of worried people flocked to banks and drew out as much money as they could. Banks lost money so quickly with the withdrawals that it caused massive deflation, and thousands of banks were forced to close in 1930. The financial problems of banks caused them to call in loans from individuals and put foreclosures on houses. When people were forced to give up their homes and money, they were unable to buy consumer products that the nation had become dependent on. Without products having to be made, factories continuously lay off workers to deal with the shortage of demand and were eventually forced to close. American unemployment rose to the highest on record when both domestic and foreign banks began to collapse.