Stock Market Crash
The beginning of the Great Depression started with the stock market crash of 1929.
In America, the stock market crash of 1929 was the start of a chain reaction of what would lead to the Great Depression. One of the key factors which contributed to the crash was the rampant speculation in the stock market, more specifically in the technology and automobile industries. Investors were buying up stocks in the hopes of making a quick profit, but the prices of these stocks were artificially inflated and unsustainable. As soon as investors began to sell off their stocks, prices gena to plummet, and panic quickly spread throughout the market. On October, 1929 the Dow started to plummet which is what triggered a panic among investors. Over the next several weeks, the market continued to decline, wiping out billions of dollars in wealth and causing widespread financial ruin.
The Dow Jones Industry Average
The Dow Jones Industrial Average is a stock mark index, created by Charles Dow, and it tracks the performance of 30 large publicly traded companies in the United States. It played a significant role in the 1929 stock market crash but previous to the crash the Dow was trading at record highs. This was fueled by an economic boom and a speculative bubble in the stock market. On October 24, 1929, the Dow Began to plummet, triggering panic among investors. Over the next several weeks, the market continued to decline, wiping out billions of dollars in wealth and causing widespread financial ruin.
Banks During 1929
Many banks and businesses had invested heavily in the stock market and were left with huge losses. This led to the wave of bankruptcies and bank failures, which in turn led to a decrease in lending and a contraction of money supply. With fewer available funds, businesses were unable to invest in new projects or hire new employees, which led to a decrease in consumer spending and a decline in economic activity. The lack of regulation is what led banks engaging in risky behaviour. This also caused many people to lose their savings, resulting in them being forced into poverty.
Agricultural Overproduction and Failing Prices
During the 1920s, American farmers had expanded production in response to high demand during World War I. However, after the war, demand for agricultural products declined, leading to a surplus of goods and falling prices. This led to the widespread hardship for farmers and contributed to the overall economic downturn. Overproduction was also a result of other factors, including technological advancements in farming, and government subsidies.During the 1920s, farmers in the United States began to adopt new technologies such as tractors, combines, and other machinery, which increased their efficiency and productivity. The result of this was that the supply of agricultural goods surged, leading to a glut in the market. At the same time of these technological advancements, the government provided subsidies to farmers to encourage agricultural production, which further contributed to overproduction. The surplus of agricultural goods caused prices to fall, which had a significant impact on
farmers' incomes. With prices falling, farmers were unable to sell their crops for a profit and were often forced to sell at a loss. This resulted in a decline in agricultural incomes and widespread farm foreclosures. The loss of income among farmers led to a decrease in consumer spending, which had a negative impact on the broader economy. As the agricultural sector suffered, the overall economy began to contract. With fewer people buying goods and services, businesses began to lay off workers, which further reduced consumer spending. This is one of the major factors of what led to the downward spiral, which led to the Great Depression.
Protectionist Trade Policies
In the aftermath of World War I, many countries implemented protectionist trade policies, such as high tariffs and trade barriers, in an attempt to protect their domestic industries. This led to a decline in international trade and contributed to the overall economic downturn known as the Great Depression.
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The adoption of protectionist polices was motivated by several factors. The first, was that many countries were suffering from high levels of unemployment and slow economic growth. At the time, putting protectionist policies was viewed as a way to protect their domestic industries and create jobs. The collapse of global trade then led to a surplus of goods in the market, which had driven down prices and made it difficult for producers to make a profit. Protectionist polices were seen as a way to limit imports and reduce the supply of goods in the market, which
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could help to raise prices and support domestic industries.
One example of a tariff that was put in place during this time period was the tariff known as the Smoot-Hawley Tariff Act of 1930 in the United States. The name Smoot-Hawley Tariff Act comes from the name of Senator Reed Smoot of Utah and also the Representative of Oregon and chairman of the House Ways and Means Committee Willis Hawley. It was put into effect June 17, 1930, in the United States and the act's purpose was to raise import duties in order to protect American farmers and businesses. Instead the act just added strain to the economy which is why it is a leading cause of the Great Depression.
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