What were the three main causes of the Great Depression?

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The Great Depression was a global economic downturn that occurred in the 1930’s. This transnational panic had many causes depending on where in the world you are talking about, but there were some major causes that were universal.

A sharp decline in global trade around the 1930’s is though to be one major cause. Most historians point to the Smoot-Hawley Tariff Act as the primary culprit because it severely reduced foreign trade and resulted in many countries issuing retaliatory tariffs on imported goods. Especially hard hit were farming exports, which caused many farmers to default on their loans later.

Another possible cause was the overabundance of debt in global banks. There was so little regulation over the banking system in some countries that banks could lend $9 for every $1 they took in. This generated short-term but hollow profits and when loans were called in there were no liquid assets in place which forced inflation through the roof.

One final global cause has been called “productivity shock” and related to the global industrialization movements that were taking place at this time. Due to the sudden rise in productivity thanks to mechanized manufacturing techniques, global work hours fell leading to a fall in worker wages. This in turn led to a dramatic decrease in consumer spending, further weakening the already tottering economy.             

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