The Great Depression was a huge part of American history and is still looked back on to this day. However, the question still raised is how it was caused. That question is still talked about and debated to this day. There were several critical events that lead up to the great depression. The first major event was the stock market crash of 1929, this began the downward spiral of the economy . Next, people began losing their faith in the banking industry and the Federal Reserve played a key role in the declining economy. As well as the federal reserve still pushing the gold standard and the president’s late reactions to try to stop the depression. Together all these events led up to the Great Depression.

While the 1920’s began as a flourishing decade with World War I am ending and production was in high demand. “However, in 1929 stock prices became so high that people began to believe that they could not reach any higher yields”. Then on October 24, 1929 also known as Black Thursday, 16,410,030 stocks were traded. Many dumped their security causing the market to plummet. This day was lead by many investors losing confidence in the market and people selling off all their shares. Prior to this, the stock market was on a huge bull run meaning stock prices would rise very rapidly because of this many people bought stocks on a margin. This meant they paid little of the full value of a stock and borrowed the rest from stockbrokers.

President Hoover

However, if stockbrokers wanted, they could hold margin, therefore if investors called, they had to paid back all the money they borrowed. Many people bought stocks on speculation, it was risky to buy stocks because they might fall, but on anticipation that they might rise. Whenever, when the stock market was falling President Hoover assured the people it would be alright whenever he said this the market would often rise. However, due to high amount of speculation it was easy for people to lose confidence in the market. Also, with so many people buying on margins this caused prices to go down dramatically, “it was recorded that stock prices went down 33% on that day in October”. Statistician Robert Bashton said, “Sooner or later the market would crash and it would be massive”. The Stock Market crash was one of the first key events leading up to the Great Depression.

Days following the crash, people lost their confidence in bank the banking system, people began demanding all the money they had in the bank to be returned to them in cash. Since banks only hold a fraction of the money and had to liquidate loans to pay customers in cash. This liquidation caused previously successful banks to crash because they were unable to pay out the cash to their customers. “Causing a widespread outbreak of bank failures resulting many people losing all their life savings within just a few short days”. People losing confidence in the banking system and demanding their cash is another important factor in creating the Great Depression.

Banking Industry’s Panic

Unfortunately, the federal reserve did extraordinarily little to try to stop the banking industry’s panic increasing the widespread failures in banks. “From 1929 to 1933, the U.S. money supply declined by 31%. In September 1931, the National Federal Reserve decreased the amount of money that was in supply and increased interest rates. Many scholars believed the Federal Reserve’s decisions would not have been nearly as devastating if there would have been a higher available cash supply as stated in the Encyclopedia Britannica.

Since there was such a high amount of bank failures people didn't want to borrow money from banks causing a huge decline in customer spending and overall business investment. This caused decreased funds, generosity, and confidence in not only the banking systems, as well as business and customer spending. Only driving the economy further down. President Herbert Hoover at the start of the depression was not quick to react, he felt that if people were independent and the country stayed strong that it would stronger after the depression. “He believed in strong or “rugged” individualism and that people needed to depend on themselves to get what they wanted and not depend on others” says The American Vision. However, the economy only grew worse as this went on.

Another huge factor leading up to the depression was the federal reserve still trying to use the gold standard. Many scholars concluded that a part of the huge decline in American money was the federal reserve was still trying to preserve the gold standard or what each country used to value its money in terms of gold. This could have meant huge outflows of gold causing its value to decrease. However, the federal reserve did not try to tighten or prevent the fall of 1931. The standard caused unbalanced trades and an increase in international gold flow. Great Britain later abandoned the gold standard along with the United States, but it was not in time to stop the depression. As well as trying to keep the gold standard the federal reserve did barely anything, they failed to raise interest rates helped caused the depression.

The American Vision

Along with trying to preserve the gold standard when it was far to outdated, overproduction was another and possibly the biggest reason for the worst economic downturn . The U.S. was producing far too many products that people did not need or could not purchase. “Many people bought large machines like cars or refrigerators on an installment plan where you pay back a certain amount of the total price over a certain amount of time” states The American Vision.

This was a good thing for the people paying but companies were not getting enough money for the products they were producing. As well as there was nowhere to put extra products since not all of the products sold. Soon, there was an excess of machines and other products that were on the market causing many businesses and the economy to suffer. This caused huge loss in money and materials putting the nation at a shortage of valuables and too many products that were not sold. There was too many efficient machineries so capacities of farms and factories were higher than ever which were key reasons for the over production.

Another key factor of the causing of the great depression and as well as causing other countries to suffer was the Hawley-Smoot tariff this tariff raised tariff rates to the highest level in American history. This tariff was supposed to protect Americans from foreign competition, but it did worse than good, hurting American sales. After this tariff was introduced other countries raised their tariffs against the United States. This caused American exports to be worth only one fifth of what they were originally before the tariffs. This hurt American business and farming significantly increasing the effects of the effects of the Great Depression.

Conclusion

In conclusion, The Great Depression was a huge part of American history and is important that we don't repeat the mistakes the American government made at that time today. There were many events and mistakes leading to this and spiraled down the economy into a pit. The main reasons being the stock market crash, overproduction, and the federal reserve failing to be effective, Hoover ensuring that a failing market would bounce back.

The American people thought that prices would never fall however this image was very false. There were many things put into order after wards to get out of the depression getting out was a long recovery. This was a huge part of American history and understanding all the causes is important for us today. There has never been a crash or depression in America as significant as The Great Depression. These causes were important and often looked back on to this day as well as learning from them so something like a huge depression will not happen again.