Causes and Consequences of the Great Depression

Causes and Consequences of the Stock Market Crash of 1929

Crowd on Wall Street after the Stock Market Crash of 1929

Before you learn about the causes of the Stock Market Crash of 1929, you need to understand some basics about stock market investing. Stock is a small ownership share of a company. When you buy stock, you are buying a small stake in a company. If the company makes a profit, it might send some of that profit back to the people who own the company's stock. This is called a dividend. If a company does poorly and goes out of business, the stock holders lose the money they paid for the stock. Because owning a stock involves some risk, it is a form of speculation. Speculation is the investment of money into a venture that has some risk of loss.

Stocks are bought and sold on the stock market. The price of a stock changes based on what people are willing to pay to buy or sell the stock. If a company is doing well and making money for its stockholders, more people will want to buy the stock, and this causes the price to go up. If a company is doing poorly, and stockholders try to sell their stock, the company might have to lower the stock price to find someone willing to buy it.

During the 1920s, businesses in America were doing very well, and the economy was strong. Many Americans felt confident that the country would continue to thrive, which led many people, businesses, and banks to invest in the economy by buying stocks. Because so many people, businesses, and banks were trying to buy stocks, the prices went up significantly. People who were selling stocks were making money. They took that money and reinvested it into the stock market. Prices went up again, and when they sold their stocks, they had even more money. Rising stock prices and people making money encouraged more to buy stocks. This continued to push prices higher and higher.

You learned that times in America were good, however, the economy was about to take a turn. In this interactivity, you will examine the causes and consequences of the Stock Market Crash of 1929. Click the player button to begin.

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Causes of the Great Depression

Migrant Mother by Dorothea Lange was taken in the 1930s and depicts poor pea pickers in California. The mother, Florence Thompson, is thirty-two years old and has seven children.

The Great Depression was not solely caused by the stock market collapse. Other flaws in the economy existed for years prior to the crash. The first economic weakness involved an overproduction of industrial and agricultural products in the United States. Some of this resulted from World War I, since a large expansion of production resulted to meet the needs of the war. The Great Depression was also partially caused by the second weakness, a huge expansion in credit that occurred. Specifically, too many Americans purchased items on credit, which put them in unstable financial positions.

In addition, the Great Depression resulted because most of the nation's wealth belonged to upper class citizens. Specifically, more than one third of the United States' assets belonged to the wealthiest one percent of the population. This impacted the economy because upper class citizens often saved their money, rather than spending it. When this happens, money does not go back into the economy. On the other hand, if the urban poor or middle class had more money at the time, wealth would have been more evenly distributed. Money would have been spent, thus put back into the economy.

A fourth cause of the Great Depression was an agricultural depression that started in the 1920s. Many farmers were struggling as prices for food products decreased after being high during World War I. In an effort to help protect American farmers and manufacturers, the government put in place high tariffs, which resulted in a fifth cause of the Great Depression. A tariff is a tax on a product coming into the United States. High tariffs are designed to make imported products cost more than the products made inside of the United States. The problem with tariffs is that other countries will retaliate by putting their own tariffs in place, resulting in a slowing or restriction of world trade.

Impacts of the Great Depression

Americans who lived through the Great Depression encountered many difficulties. Unemployment skyrocketed, farms foreclosed, and banks shut down. In this interactivity, learn about the changes Americans had to endure, and the mindsets that also shifted during this era. Click the player button to begin.

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Countless individuals had tragic stories to tell based on their experiences during the Great Depression. One Jewish immigrant from New York City told his story to the nation through the song "Brother, Can You Spare a Dime?" found in eMediaVASM. Take a moment to view the video. Through the story of Yip Harburg, you can better understand how Americans were ready for change in the country.

 

Recovering from the Great Depression

The American economy experienced a downturn during the Great Depression. Homelessness reached its peak, and more than twenty-five percent of the American population had no job. President Herbert Hoover could not successfully stop the unrest experienced by Americans. Therefore, the election of President Franklin Delano Roosevelt seemed critical for igniting a positive change. In this interactivity, you will discover the initiatives Roosevelt implemented through the New Deal to support poor and unemployed citizens, help the economy, and reform the financial system. Click the player button to begin.

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President Roosevelt had a lot of work ahead of him before the nation regained confidence in the government. The collapse of the banking system was a huge issue in the United States during the Great Depression. Listen to Roosevelt's Fireside Chat on the banking crisis which he recorded on March 12, 1933.

 

Causes and Consequences of the Great Depression Review

Now that you have explored the causes and consequences of the Great Depression, complete this activity to check your knowledge. In this non-graded game of tic-tac-toe, you will need to correctly answer three questions in a row to win, Click the player button to get started.