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1. The Great Depression was a severe global economic depression, lasting from 1929 to 1939. It started in the U.S and spread worldwide. It was the worst economic depression in American history.
2. Economics point to the stock market crash of 1929 as the major cause of the great depression, but there are other factors that led to this economic downturn.
II. Body
The stock market crash of 1929
In the 1920s, the stock market in the U.S underwent rapid expansion.[footnoteRef:1] [1: Ben Bernanke. Essays on the great depression. Princeton University Press, 2000.]
1. Stock prices rose to unprecedented levels, and investment in the stock market became attractive, with millions of shares being carried on margin.
2. However, the expansion reached its peak in 1929, and stock prices began their inevitable decline, causing panic to overextended shareholders who rushed and liquidated their holding, aggravating the decline and panic.[footnoteRef:2] [2: Ben]
Declined in stock prices beginning in September 1929 and early October resulted in a confidence decline in the stock market, which shook the economy.[footnoteRef:3] [3: Michael McGerr, Ellen Lewis J, James Oakes, Nick Cullather, Mark Summers, Camilla Townsend, Karen Dunak M, and Jeanne Boydston. Of the People. Oxford University Press, 2020. ]
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1. The trading of more than 12 million shares on October 24, “Black Thursday,” resulted in brokers rushing to sell their stock.
2. On “Black Monday,” October 28, the stock market was rapidly declining, and more investors facing margin calls were selling their stock at a loss.
3. This was followed by “Black Tuesday,” October 29, whereby stock prices collapsed completely, and more than 16 million shared were traded, billions of dollars lost, and wiping out thousands of investors.[footnoteRef:4] [4: Richard M Salsman. “The Cause and Consequences of the Great Depression, Part 1: What Made the Roaring’20s Roar.” The Intellectual Activist 18 (2004).]
Bank failures
The impact of the stock market crash rippled throughout the economy.
1. After the stock market crash, banks started failing, with approximately 700 banks failing by the end of 1929.[footnoteRef:5] [5: Richard]
2. The stock market crash resulted in people questing the security of their money, and many people began pulling their investment assets out of the economy.
3. Bankruptcies become common, and the confidence of people in financial institutions, including banks, rapidly eroded.[footnoteRef:6] [6: Richard]
People panicked, resulting in “bank runs.”[footnoteRef:7] [7: Ben Bernanke. Essays on the great depression. Princeton University Press, 2000]
1. Many depositors lost confidence in the security of their money in banks and thus, “run” and withdrew their money from the banks.
2. Banks were forced to liquidate loans and sell assets at rock-bottom prices and, as such, suffered losses leading to bank solvency.
3. Surviving banks were unwilling to lend money due to economic uncertainty, and this aggravated the downturn, with consumers spending less and less.
Reduction in purchasing power
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As investment became worthless, people’s savings depleted, and with no loans from banks, consumer and business spending significantly declined.[footnoteRef:8] [8: Ben Bernanke. Essays on the great depression. Princeton University Press, 2000]
1. Inventory was accumulating, and businesses were making losses, resulting in diminished production.
2. Workers were laid off, which meant no income and consequently less spending.
American Economic Policy with Europe[footnoteRef:9] [9: Ben]
Congress passed the Tariff Acts of 1930.
1. To protect the U.S industry from foreign competition, this act was passed, imposing high tax rates on various imported goods.
2. American trading partners imposed tariffs on goods from the U.S as retaliation.
3. World trade fell, which further aggravated the economic downturn.
Drought condition
Environmental disasters worsened the Great Depression.[footnoteRef:10] [10: Richard M Salsman. “The Cause and Consequences of the Great Depression, Part 1: What Made the Roaring’20s Roar.” The Intellectual Activist 18 (2004).]
1. The “Dust Bowl” in the Midwest resulted in farmers losing their livelihoods.
2. Prices for the crops significantly declined below subsistence levels as the economy collapsed.
III. Conclusion
1. The Great Depression began with the stock market crash of 1929 and other factors.
2. This was the worst economic crisis in American history, and lessons learned from it would be helpful in preventing such a situation from ever happening again.
Bibliography
Bernanke, Ben. Essays on the great depression. Princeton University Press, 2000.
McGerr, Michael, Lewis J. Ellen, Oakes James, Cullather Nick, Summers Mark, Townsend Camilla, Dunak M. Karen, and Boydston Jeanne. Of the People. Oxford University Press, 2020.
Salsman, Richard M. “The Cause and Consequences of the Great Depression, Part 1: What Made the Roaring’20s Roar.” The Intellectual Activist 18 (2004).