Great Depression-Causes and Impact

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Great Depression-Causes and Impact is open for . The scholarship allows level programm(s) in the field of taught at . The deadline of the scholarship is .

During the third decade of the twentieth century, many economists believe that USA was leading economy of the world due to which President Hoover after getting elected announced that America would soon see elimination of poverty from their land. But unfortunately it did not happen. Everything went wrong and America saw the greatest and longest economic depression in its history starting from the stock market crash of 1929. This was a time in American history when stock market crashed, banks got closed, people lost their jobs and savings and were penniless. Main causes of this “Great Depression” are as follows:

1. Stock Market Crash:

This is considered as the major cause of great depression but not the only cause. Two days are considered as black days in this regard; 24th October 1929 (Black Thursday) when more than 13 million shares were sold and Black Tuesday 29th October 1929 when a record 16 million shares were exchanged for smaller and smaller values. According to some estimates, the stock market had lost around 40 billion dollars after two months of the crash which occurred in October.

2. Banks’ failure:

Banks’ failure in the 1930’s was another major cause of the depression as the people’s savings were not insured and due to their failure, people lost all their savings. In 1929 only, 659 banks closed and up till 1932, around 5102 banks were out of business. Throughout the 1930’s around 9000 banks were closed. Banks which survived were not giving any loans and also affected the business and industries.

3. Trickledown Economics:

The idea of trickledown economics is that the more money rich people get; the more they would invest and the more it will help poor people to earn money. But here, it went the other way. The rich people either did not invest their money or they brought modern machines which could do job of multiple people. Thus the life of poor people became worse.

4. Accumulation of wealth in few hands:

The policies in US at that time mostly favored the rich and all the prosperity and advantages were received by the rich. It is said that that mere one percent of the rich Americans had control over one third of all the American assets. Purchasing power of the middle class had already reduced.

5. Over Production:

Due to the introduction of modern machinery in industries, production of various products was more than before. But as the people’s purchasing power had reduced therefore, the sale had reduced. In simple words, production was more than sale. This crisis also prevailed in agricultural sector where the farmers were producing more than the amount they could sell and thus the prices fell resulting in heavy loss.

6. Hawley Smoot Tariff Act 1930:

European economies were badly shattered as a result of World War 1 and they owed huge debts to US due to which they wanted to buy less from US and sell as much as possible to lower the burden of debts. To counter this strategy, American government introduced Hawley Smoot tariff Act in 1930 to impose heavy duties on import items. This led to reduction of trade between the foreign countries and the US as they lost their interest in trade with US which eventually proved fatal for American economy.

7. Other factors:

Other main factors which further deteriorated the situation was the delayed impact of the world war and the political unrest in Europe, Asia and South America due to internal debt and other internal problems.

Impact of Great Depression

  • In Sep 1929, the worth of New York stock market was around 87 billion dollars but after the crash of Oct 1929, in November around 30 billion dollars were lost from the economy. According to various sources and economic experts, the worth of New York Stock exchange was a mere 15 billion dollars in Nov 1932.

  • In 1929 around 1.5 million people were unemployed which rose to 12 million in 1932. In 1933, around 30 million people were not having any source of income and the unemployment rate rose to 25 %. Labors were forced to accept wage cuts or pink slips.

  • Due to massive poverty60 % officially declared, people were forced to do odd jobs like collecting laundry, selling apples in street etc. Many Professors were seen driving a taxi in the evening to make ends meet.

  • Unemployment and excessive poverty forced people to do illegal acts and businesses which were immoral like prostitution and alcoholism etc. These acts eventually led to rise of social evils. Crime rate and suicidal attempts increased during those times and Bread riots and shanty towns also increased in number.

  • Unemployment, massive poverty and rise of social people lowered the standard of living of people. Cigars became expensive and people started smoking low quality cigarettes. Public spending on education declined resulting in closure of many schools. Higher education was out of reach of many Americans. Marriage rate also declined as people wanted to earn a living first to feed their family. Birth rates also fell sharply during depression years.

  • As said earlier, the purchasing power of people had already declined and agricultural sector also was affected. Farmers, instead of earning, were losing money on their farms. Strong dust winds and droughts acted as adding fuel to fire leaving farmers with n money at all and ended up in devastation of farms.

  • Another impact of great depression was that the people’s faith in democracy was shaken. At that time communist countries were not facing any depression rather were strengthening industrially and economically. Most of the people started looking at communism with favor and due to this many people converted to communism or socialism which promised them a classless society.


Although there were some incidents of violence or strikes, but as a whole the Americans remained peaceful during this long and tough depression. There is no specific date as when did this depression end but most economists and historians are of the view that it ended during the Second World War when new jobs were created and weapon industry flourished.


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