We know that the causes of the Great Depression ultimately led to a stock market crash on October 29, 1929, known as Black Tuesday. However, identifying one specific cause for this economic...
We know that the causes of the Great Depression ultimately led to a stock market crash on October 29, 1929, known as Black Tuesday. However, identifying one specific cause for this economic depression can be difficult.
In this discussion, list at least three causes of the Great Depression and identify which particular cause you think was most damaging to the country’s economy. Provide an overview of the cause and how it correlates to the stock market crash. Has this type of economic catastrophe occurred during the last decade, causing economic hardship? Explain.
While the stock market crash of 1929 is often identified as a cause of the Great Depression, the stock market crash was in actuality a symptom of the weaknesses in the economy that led to the Great Depression, rather than a cause. Historian Alan Brinkley in his textbook The Unfinished Nation has identified several other causes of the Great Depression:
- One cause was lack of diversification in manufacturing. While automobiles and construction were strong in the 1920s, these industries were beginning to wane by the time of the stock market crash in 1929. New industries were beginning to pick up but had not done so by the time of the stock market crash.
- Another cause was problems with credit. Farmers, who were in debt, were often unable to pay off their loans, while bankers made risky loans and investments in the stock market. People often bought stocks on margin, meaning they put down about 10% of the value of the stock, thinking it would go up. When it went down, they were asked to pay money but could not do so.
- A third cause was consumers' weak purchasing power. This is perhaps the most important cause, as it created weak demand. While manufacturing rose a great deal in the 1920s, the profit did not flow to consumers. Therefore, they did not have money to buy what was produced, leading to a weak economy. This type of income inequality has occurred in the last decade as well, as the people at the top of the economic ladder are taking in a greater and greater percentage of the profits.
The Great Recession of 2008 was in some ways similar to the Great Depression, as the recession was caused in part by limited regulation of financial institutions and speculation (in the housing market rather than in stocks, as was the case in the Great Depression). However, there were safeguards in place that made the recession less catastrophic than the Great Depression. For example, while the Great Depression resulted in unemployment rates of 25%, the unemployment rates in the Great Recession were approximately 8.5%.