Reasons That Caused Great Depression

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The Great Depression, which came from many short and long-term causes, was one of the worst economic spirals lasting from 1929 until the late 1930s. It started with large loans from banks, consumer debt, varied income distribution, buying on margin, and the stock market crash, which then created a domino effect to businesses, employees, and families affecting each differently. In response to this catastrophic event, there was Herbert Hoover who figured the economy could naturally recover from the Great Depression over time whereas Franklin Roosevelt created the New Deal that worked with federal government and agencies to help relieve some of the issues in the economy that came from this time.

When looking back at the roaring twenties, much of society was putting their money into stocks, having the market stocks reach a value of $87 billion in October of 1929 (Boyer 730). Investing seemed to be one easy way to make money. Unfortunately, many of these stocks were being bought on margin and prices began to decline terrifying shareholders. At this time, we already saw some effects in society that included production decline, increase in unemployment, wages being lowered, consumer debt increased, banks offered excessively large loans, and agriculture depressed (Boyer 730). The stock market then crashed on October 24, 1929, also known as “Black Thursday” (Boyer 730). Many of these stock’s prices fell leaving no buyers at all, making the stocks worthless. Unfortunately, there were many long-term and short-term causes that lead to this unfortunate and devastating event that affected all people.

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The first issue was a failure from the banks. In September of 1929, The Federal Reserve Board tried to dampen speculation by raising interest rates and warned banks to restrain their lending. Interest rates for speculators were still 20% to buy more stock so lending institutions still were giving out large loans freely (Boyer 730). Some people also blamed the Federal Reserve System’s “tight-money policies in the early 1930’s” (Boyer 730). Once the market crashed, people were not in a financial position to pay back the debt that they already owed let alone what would come in time. “From 1929 to 1932, the gross national product dropped from $104 billion to $59 billion. Farm prices, already low, fell by nearly 60%. By 1933 more than fifty-five hundred banks and unemployment stood at 25% or nearly 13 million workers” (Boyer 731). Many factories and farmers had invested lots of money into their products. Now businesses had a surplus in products with consumers unable to buy, creating less need for workers, and a lowered income for both the employees and business. This meant more people in society were becoming unemployed leaving them with fewer funds on hand to buy necessities or luxury goods. It also created an increase in poverty and homelessness rates as many became unable to provide payments for their homes (Boyer 733). Many individuals also had to buy goods on credit creating more debit individually and as a society. Overall this caused society to panic and have little faith in the government.

Herbert Hoover’s main goal as President was to restore confidence with society in the economy and banking system but he still wasn’t very popular with individuals in society, even over time. He urged business leaders to maintain wages and employment, encouraged local city and state officials to create public work projects. “In October 1930, he set up an Emergency Committee for Employment to coordinate voluntary relief efforts and in 1931 persuaded the largest banks to create a private lending agency to help smaller banks make business loans” (Boyer 731). Hoover created a tax increase and eventually in 1932 set up the Reconstruction Finance Corporation to make loans to banks and other institutions (Boyer 731). Although Hoover did try to put measures into place to improve the economy, he truly believed that with time things would begin to recover on their own.

In 1932 Franklin Roosevelt became president and “pledged to create a new deal for the American people” that wouldn’t forget about any person whether they be on the top or bottom of the pyramid (Boyer 734). The basic goals of Roosevelt included: “industrial recovery through business-government cooperation and pump-priming federal spending; agricultural recovery through crop reduction; and short term emergency relief through state and local agencies” (Boyer 734). “When the depression hit he introduced innovative measures in New York including unemployment insurance and public-works program. Intent on promoting recovery while preserving capitalism and democracy, Roosevelt encouraged competing proposals, compromised differences, and then back measures he sensed that Congress and the public would approve” (Boyer 734). The New Deal started with “the 100 days” that worked to provide relief to individuals of society. He began with the banks by “setting up procedures for managing failed banks, increased government oversight of banking, and required banks to separate saving deposits from investment funds” (Boyer 737). He also worked with agencies and the government to create programs like HOLC, CCC, AAA, PWA, NRA, TVA, the Federal Emergency Relief Act, and many more. These worked to help people losing their homes, farmers, employing the jobless, helping the environment. Then came the Second New Deal which focused on workers’ protection and building long-lasting financial security for Americans (Boyer 744). New laws and agencies were continued to be introduced through 1939. Although not all of these acts and agencies continued as planned many still believed in Roosevelt and the promises associated with the New Deal. The New Deal altered the role of the federal government and the lives of the American people as many of these laws and policies made the government more involved in the daily lives and welfare of citizens.

The Great Depression was a devasting event that was caused by many short-term and long-term affects that affected all members of society. These included large loans given from banks, consumer debt, varied income distribution in society, buying on margin, and the stock market crashing. Many lost homes, jobs, created greater amounts of debt, and were unable to care for their families. Two presidents, Herbert Hoover and Franklin Roosevelt, both worked in different ways to try to improve the economy. Franklin Roosevelt introduced the New Deal which worked to provide relief, recovery, and reform through agencies and the federal government.


  1. Boyer, Paul S. The Enduring Vision: A History of the American People. Boston: Houghton Mifflin, 2006. Print.


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