Causes

• Wall Street Crash

  Many people lost savings and there were wage cuts.

  • Reduction in consumer spending
  • Difficult for businesses
  • Supply of credit cut to help banks find it easier to cope
  • Lower production, fewer wage earners
• Under consumption


  America's reduced spending on consumer goods such as cars, radios and houses.

  (Huge gap between rich and poor)

  • 71% of Americans on low wages - earning below $2500 per year

  Goods producers lost jobs - weakened their purchase power.
• Failing Banks

  Strong economy relies on banks to protect people's savings and provide loans.

  • Limited reserves of money available
  • 1/3 of banks in federal reserve system

  Banks more likely to be affected by run - when customers of the bank withdraw their deposits at the same time over fears over the banks solvency.

  Before 1929: 5,172 or 20% of banks failed - customers saw the change in the stock market and quickly took out savings.

  Banks lost $286 million.

  Banking system collapsed.
• Over production


  Challenges facing older industries (coal, textiles, railroads)

  Late 1920s: Car + consumption industries also in decline.

  • Car sales had fallen by a third in 1929
  • Amount spent on construction dropped by $2 billion since 1926

  Still producing goods to sell, fewer people buying them (prices fall)
• Farmers

  Overproduction and failing demand caused big problems for the agriculture industry (dramatic change for already suffering rural areas)

  • 1930-1931: Severe droughts.

  Already bad soil because of erosion by excessive use

  • 1932: Conditions worsened by dust storms

  (Not a cause of the Great Depression, but did make the situation a lot worse)
• Problems in Europe

  First World War in Europe = big!

  Many European countries were unable to pay back loans. (WW1 debts)

  Major European nations began to cut themselves off from America:

  • High tariffs placed on American goods
  • Germany trying to become self sufficient
  • Britain set up trading within its own empire