What are some reasons why the American economy collapsed in 1929?

Expert Answers
pohnpei397 eNotes educator| Certified Educator

There are a number of reasons why the US economy collapsed at the beginning of the Great Depression.  Let us look at two of the most important of these reasons.

One cause of the collapse was the fact that the agricultural sector had been “sick” during the 1920s.  Farmers had done quite well during World War I, but as the 1920s wore on, the sector got weaker and weaker.  US farms were producing more than ever, but competition, both from abroad and at home, was depressing prices.  Farmers were badly in debt.  Since they made up about a quarter of the population at the time, this was very important to the economy.

A second cause of the collapse was the tremendous concentration of the country’s wealth.  This was a time of severe income inequality.  Worse still, there were many relatively poor people.  If the masses of people had had more money, they could have kept spending relatively large amounts even after the stock market crash.  The problem was that the masses did not have enough money to buy all the necessities of life.  This meant that demand for goods plummeted, causing the economy to weaken and collapse.

Thus, the lack of money in the hands of so many people, both farmers and city dwellers, meant that the US economy was in a precarious position and was liable to collapse.