Causes of the Great Depression

FactorsAn old and decaying industrial base:

Outmoded equipment made industries less competitive, leading to reduced sales and increased unemployment.

The overexpansion of farm production: As wartime markets disappeared, farmers maintained

production levels. They produced more than they could sell causing

prices to fall and prevent them from repaying loans.

The availability of easy credit: As debt grew and people lost jobs, they were unable

to pay off creditors which led to bank failures.

Factors (cont.)Unequal distribution of income:

A small percentage of Americans received most of the income. Industrial workers and farmers had little money.

Hoarding of money: Individuals distrusted banks. Hoarding money in their

homes constricted the money supply and stifled business expansion.

Stock market speculation and buying on margin: Extreme confidence in the stock market led to poor

investment choices. Black Tuesday: October 29, 1929 Buying on margin: Investors taking out bank loans to

purchase stocks.

Factors (cont.)Bank failures:

Banks that had invested heavily in the stock market lost millions.

Panic led to runs on the bank.

Monetary and fiscal policies: The Federal Reserve had kept interest rates low

(encouraging borrowing) and tax policies perpetuated the unequal distribution of wealth.

Trade and regulatory policies: High U.S. tariffs led to retaliatory tariffs by foreign

countries. The government failed to regulate market speculation.