The Great Depression was caused by multiple factors including wealth disparity, tax reductions for the wealthy, stock market crash, lack of trust in the economy, massive unemployment, bank failures, and protectionist policies.
The Great Depression was the worst economic crisis in US history and resulted in one of the worst economic states in modern world history. There is no agreed-upon list of causes of the Great Depression, in part because there were simply so many different causes. There was also, and remains, a desire by many groups to place the blame on the feet of other groups, and so many possible causes are hotly contested. Even with that, however, there are a number of main reasons that at least most people can agree on.
During the 1920s, the United States prospered enormously. Immense wealth was created, but that wealth was extremely unequally distributed throughout society, both in terms of class disparity, and among various sectors, such as farm laborers and industrial laborers. While many people hate to admit it, it’s very likely that a major cause of the Great Depression was this wealth disparity. In 1929, about 0.1% of the wealthiest Americans held nearly 35% of all savings in the United States, and more than 80% of Americans had absolutely no savings at all.
The legal structures established at the time helped perpetuate this imbalance. Taxes were drastically reduced, with the wealthiest millionaires seeing their tax burden reduced by a third of what it had been in the early 1920s. At the same time, laws were passed that were intended to protect the lower classes of the United States, such as the 1923 Supreme Court ruling that a minimum wage law was in fact unconstitutional.
At the same time, the stock market was soaring higher and higher, and more and more started wealth was tied to that market. When the stock market crashed in 1929, it set the stage for a massive economic collapse and was undoubtedly a major cause of the depression. Between the October crash and the end of the year, the stock market lost more than $40 billion dollars (USD), heralding the onset of the Great Depression.
As the stock market crashes, so does people’s confidence in the economy. One of the biggest causes of the Great Depression was a lack of trust in the system, leading people to simply stop buying things. When people stopped buying, companies stopped making things, which led them to downsize, which meant unemployment went through the roof. This massive unemployment was another cause, and at its peak more than one in four Americans were out of work.
In the early 1930s, US banks were uninsured, meaning they were left largely to fend for themselves in the event of failure. In the 1930s over 9000 individual banks collapsed and when they collapsed they took people’s savings with them. Without a federal insurance system in place to protect those assets, large numbers of people have lost everything they had. Bank failures have also left the surviving banks terrified of the future, and thus have become increasingly unwilling to lend money. New businesses and individuals have not been able to raise funds.
In response to these many causes of the Great Depression, the government passed brutal laws to try and protect American businesses in the international marketplace. Import taxes have gone through the roof and as a result, foreign countries have stopped doing business with the US and in many cases have actively reacted against US policy with protectionist policies of their own.
There were other causes as well, from numerous failed policies instituted by the government to try to avert the crisis, to natural disasters such as the Mississippi drought of the 1930s. finally with him much of the world.
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