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Causes of the Great Depression The main cause of the Great Depression was a lack of understanding of economic systems. The Great Depression began in 1929, during Republican President Hoover s watch. Many try to blame the worsening of the Depression on Hoover, for his deviation from Republican economic ideology. However, almost all of Hoovers government action occurred during his last year in office, long after the worst of the Depression had hit. In fact, he was voted out of office for doing not doing enough. The economy was turning downward before Hoover took office in 1929.
Entire portions of the economy were depressed throughout the 1920 s, such as agriculture, energy and mining. Even industries with most growth (construction and automobile manufacturing) showing signs in the year before the stock market crash, about 600 banks a year were failing around the country, and half the American people were living at or below the minimum subsistence level. By the time the stock market crashed, the ruin of the American economic system was revealed. There were many things which contributed to the economic deterioration leading to the depression; lingering effects of WWI caused the government to cut back spending in order to balance the budget, resulting in a severe recession. The value of farmland falls 30 - 40 percent.
Severe Declines in organized labor. Many workers lose their jobs as more advanced machinery makes them unnecessary. The acute phase of the Great Depression began in October 1929, with the Wall Street Crash and continued through the early 1930 s. After share prices plunged on Wall Street, US banks were forced to call in their foreign and domestic loans. However most people were already suffering from the various economic problems and few were able to pay the banks.
Meanwhile, those who had money saved in banks began to withdraw it. Without enough money to pay their depositors, banks collapsed. People began to hoard money, which contributed to the problem. Times became more difficult because of people withdrawing their funds from the market.
A working economy relies on a circular flow of money; my spending becomes part of your earnings, and your spending becomes part of my earnings. With the crash of the stock market and the failure of the banks, people became frightened. They pulled out their funds in order to protect their livelihoods. This resulted in a breakdown of the circular flow of money.
Hence, a depression.
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Research essay sample on Circular Flow Great Depression
