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Causes of the Great Depression of the 1930s


The stock market in the United States crashed in 1929, and stock market prices dropped dramatically, an event known as the Great Crash/Wallstreet Crash. This enormous stock market fall was the catalyst for the Great Depression, a severe global economic downturn that began in the United States in 1929 and lasted for roughly ten years. It resulted in a sharp drop in production and output, as well as high unemployment rates and severe deflation around the world. The United States stock market saw fast expansion from the mid-1920s to the late 1920s, when stocks soared to new heights and individuals flocked to brokers to invest liquid assets and savings in order to sell at a profit. People poured their whole savings into the stock market as a result of wild speculation that persuaded them to borrow money to purchase shares. Stock prices began to tumble, much to the amazement of many, until the market went into freefall as many hurried to sell. As a result, the United States and the rest of the industrialized world were plunged into the Great Depression. This paper argues that the Great Depression that hit the world in the 1930s was due to the stock market crash that began in the United States which had a knock-on effect on other economies throughout the world, as businesses faltered and inflation rose, impairing people’s ability to provide a stable income for themselves and their family.

Causes of the great depression

The 1929 Wall Street Crash is often regarded as the beginning of the Great Depression. It lost significant wealth and, more crucially, it generated concerns about the economy’s health, prompting consumers and businesses to cut back on spending. Despite its massive impact on the global economy, the stock market did not trigger the Great Depression.[1] Instead, it triggered a cascade of events that culminated in the Great Depression. Protectionist trade policies and the breakdown of international trade, according to some economists, contributed to the Great Depression. Prior to the Great Depression, the credit culture in the United States had begun to flourish, and the 1920s saw a surge in mass consumerism due to mass production. People could easily obtain loans from banks, and by 1919, around 6 million Americans owned automobiles, with more than 20 million owning automobiles ten years later. It seemed as if the economic expansion would never end. During the 1920s, economic prosperity caused the stock market to rise at a breakneck pace. Stocks rose to new heights, and the American middle class began purchasing them through brokers in order to invest liquid assets and savings in order to sell at a profit. Within five years, the stock values had quadrupled.[2] As stock brokers established up shops in cities and towns to sell stocks to ordinary people, investment in the stock market became a hot topic for most Americans. People borrowed money to buy stocks because it was easy to acquire a loan from a bank, and they were betting that the stock market would rise and they would make enormous gains. The stock market reached unsustainable levels as a result of enormous borrowing and massive stock sales. People ignored some people’s warnings about the impending danger of a market crash, but no one paid much attention to these warnings.

Stock prices began to plummet in September 1929, and the market eventually collapsed as consumers hurried to sell. The speculative bubble eventually burst, causing financial panic across the country. Nobody anticipated such a precipitous drop. People’s funds were lost, and they were unable to fulfill their loans. Because banks were unable to recoup the money they had loaned to Americans, they began to fail one by one. People began withdrawing their savings from small banks as a result of the panic, resulting in a massive bank run, with big banks finally following suit and collapsing one by one. As the whole banking system froze, a massive financial catastrophe arose. There was no finance available to help the economy get back on track. Credit shortages began to hinder economic activity, with businesses unable to obtain bank loans for investment and finding it difficult to repay their debts. As a result, they began to fail one by one as well. People lost their employment as businesses closed. A minor recession that could have been readily managed by the US central bank turned into a full-fledged depression. Following that, the United States and the rest of the industrialized world were plunged into the Great Depression.

By this period, manufacturing had degraded and unemployment rates had skyrocketed, leaving stocks worth far more than they were worth. Furthermore, salaries began to drop, the agricultural sector began to struggle, and large bank debts were unable to be repaid. Investment firms and top bankers attempted to stabilize the market by purchasing massive amounts of shares, but the result was a free-falling market in which equities completely crashed. Hundreds of millions of dollars were lost by several investors. People’s purchasing power was low due to a lack of jobs as a result of the depression. As a result, there was very little demand for items. As a result of the low demand, production and output were low, resulting in a poor overall economic output. Consumer confidence fell as a result of the drop in economic output, as consumers were unclear not only of the overall status of the economy, but also of their own financial situation, as the majority of them did not have a consistent source of income.

The collapse of the stock market in the United States, together with the economic downturn that occurred in Germany and the financial crisis that occurred in Great Britain and France, contributed to the global financial crisis. Because governments and financial institutions moved inwards, it is believed that the lack of international coordination was the most significant factor in the development of a national economic crisis into a worldwide slump. As a result of the Great Depression, global politics from Asia to Europe were destabilized, and economies all around the world were adversely affected. As a result of World War I, the United States requested an expedited reimbursement to Germany, which was already experiencing economic difficulties (inflation, economic downturn, crippling post war financial reparations). This had a direct impact on the near-collapse of the economy, as well as the subsequent hyperinflation, which aided the Nazis in their rise to power during World War II. The rest, as is well known, resulted in the worst calamity Europe had ever seen in its history. It is important to note that the repayment of US debt has only contributed to the horrible German economic crisis. It is interesting to note that the hyperinflation of the inter-war period, in particular, has been so ingrained in German memory that German politicians are still fearful of it and insist, sometimes counter-productively, on austerity measures to keep general European debt under control.

Following the collapse of Wall Street, the United States could no longer afford to continue to assist the German economy in the manner in which it had done so prior to the collapse. As economies around the world struggled to recover from the effects of the Great Depression, the loss of jobs and decrease in exports had a significant impact on Germany’s economy. Unemployment in Germany reached uncontrollable levels, prompting many to resort to political groups that offered alternatives to the country’s faltering democracy system. All of these groups were dissatisfied with the Treaty of Versailles and swore to rectify the situation that had been created by unfair reparations, unjustified land confiscations, and restrictions on the ability to field armed forces. Japan, along with other Asian countries, was adversely affected by the Great Depression in the United States. As a result, Japanese goods were no longer being sold to other nations, resulting in the collapse of the Japanese manufacturing industry, which was unable to get raw materials at lower prices.[3] The Great Depression resulted in the growth of fascism throughout Europe, which in turn resulted in political upheaval throughout Asia and Europe. The Great Depression, for example, resulted in political upheaval that paved the way for dictatorial regimes like Germany’s Adolf Hitler’s and the military of Japan, among other things. These events pushed the globe one step closer to war. After the war eventually broke out in Europe and Asia, the United States attempted to keep out of the conflict, but was drawn into it when Japan attacked the US Naval station at Pearl Harbor in Hawaii. As previously said, the Great Depression wreaked widespread economic destruction and political upheaval throughout the world, and it continues to be remembered as a major historical calamity to this day.

The Great Depression in Canada

The fact that Canada was so reliant on international trade was the primary reason for the Great Depression’s impact on the country. When the United States signed the Smoot-Hawley Tariff Act in 1930, foreign trade suffered a significant decline. This is due to the fact that the signed deal increased tariffs on several imports to levels that were previously unheard of.[4] Canada’s Gross National Income (GNI) was primarily derived from exports. As a result, the collapse of international trade had a significant impact on the country. Even before the crash, commodities prices in Canada were in a state of flux, and new home development was slowing down significantly. In addition to overpopulation and debt, Canadians were confronted with a number of other difficulties prior to the Great Depression. In addition, the fact that foreign currencies were in difficulty and that new stock markets were inexperienced were important external considerations to take into account. According to Belshaw, “inflated currencies, the popularization of stock market gambling, over-extension of household and industrial credit, heavy capital investment in machinery and buildings, a teetering international monetary and capital network, as well as a bubble in the commodities markets” all contributed to “a massive economic collapse.”[5]

It was discovered that Canada’s social-welfare system was insufficient, and that the government’s efforts to solve problems through policy were insufficient and inefficient. The frequent droughts that occurred in various regions of Canada contributed to the severity of the Great Depression’s effects on the country. When it comes to the Prairies, Canada has suffered from severe droughts since the 1930’s. “Dust storms were increasingly prevalent as they devastated entire fields, changing the farming landscape of the prairies, and it would have a long-term impact on farming operations,” as a result of these adverse conditions.[6] As a result, a large number of individuals lost their jobs, and the unemployment rate began to rise. Many farmers emigrated to British Columbia and Ontario, and those who remained were forced to rely on government assistance.

As the Great Depression progressed, the governments of Canada did nothing to mitigate its consequences on the population. The issue of unemployment was a big concern, but the government refused, for the most part, to provide work to the country’s unemployed citizens. However, the government established relief camps in some parts of Canada for unemployed males, where they might find some low-wage work, and this partially alleviated the threat of large numbers of jobless people congregating in the cities’ cores of population. These relief camps were ineffective since the majority of Canadians were out of work, but “the federal government took a minimalist approach, hanging onto its trust in a transitory readjustment and an unassisted return to prosperity.”[7]

Recovery and the end of the Great Depression

The Great Depression brought an end to the prosperity of the 1920s, which resulted in a great deal of misery for the people of the United States. In reaction to President Herbert’s administration’s ineffective measures for addressing the Great Depression, Americans overwhelmingly elected Franklin D. Roosevelt as the nation’s next president, promising him that he would create chances for the nation’s struggling citizens. He was instrumental in establishing the New Deal, which was aimed at restoring prosperity to the United States. As soon as he assumed office, he set about developing and implementing programs to stabilize the economy, create jobs, and bring assistance to those who were suffering in the United States of America. During the next eight years, the Roosevelt administration implemented a succession of experimental New Deal programs and projects that fundamentally and permanently altered the United States federal government by expanding its size and scope—particularly its role in the economy.

Meanwhile, the American economy had improved from 1933 to the beginning of 1937, despite the fact that it had not fully recovered from the consequences of the Great Depression. The terrible effects of the Great Depression had eased by this time. The gross domestic product (GDP) increased at an annual rate of 10%, industrial output increased, and unemployment decreased by 11%.[8] Roosevelt was confident in the development of the economy, and he even refused to heed the advise of those who adhered to Keynesian economic principles. His alternative strategy was to reduce government spending, and in 1937 he reduced the budget of New Deal programs in an attempt to bring the federal budget into balance. While this drop in government spending was beneficial to the economy, the stock market crashed, industrial output grew, and unemployment rose as a result of the cut in government spending. Roosevelt reversed his tactics in reaction to these challenges, and the Emergency Aid Appropriations Act of June 1938 was passed, increasing the number of jobs available and raising additional monies for direct relief and government loans. A more accommodative credit policy was also adopted by the Federal Reserve Board in order to stimulate the American economy.

The New Deal was challenged with a series of political failures that came one after another. Specifically, the conservative majority maintained that they represented an unconstitutional extension of government jurisdiction and that they had already overturned reform initiatives such as the “National Recovery Administration” and the “Agricultural Adjustment Administration,” among others.[9] As part of his effort to protect his initiatives from further political interference, Roosevelt unveiled a proposal in 1937 to increase the number of liberal justices on the Supreme Court to oppose the obstructionist conservatives. The conservative justices began voting in order to uphold the New Deal’s initiatives as soon as they were nominated. However, Roosevelt’s public image was severely harmed as a result of the scandal, giving his Congressional opponents the upper hand. During the same year, the American economy entered a new period of contraction. Unlike previous recessions, this one was both severe and brief. In 2939, the economy began to revive, and unemployment rates began to decline. The recovery that occurred following the recession was occurring at a faster rate than previously. The Japanese attacked Pearl Harbor in 1941, marking the beginning of the United States’ participation in the Second World War, which began in December 1941. The war created the necessary demand to stimulate the economy. The process of growth began even before the outbreak of war. In the wake of World War II, the United States saw a monetary growth that provided the final push it needed to emerge from the Great Depression. The war boosted industrial production in the United States, effectively bringing the Great Depression to a conclusion.


The Great Depression put the very fabric of American society to the test in a way that had never been done before or since. Because of this, the economy was thrown into disarray, and Americans began to distrust their own skills and morals. Everyone in America, from the upper to the lower classes, experienced emotional, physical, and psychological misery as a result of the event. The Great Depression had the most catastrophic effect on human suffering, and this was the most destructive effect of the Great Depression. The level of unemployment was so great that, in a very short amount of time, the living standards of Americans plummeted. Millions of Americans were made unemployed or homeless, and poverty levels rose as a result of the economic downturn. However, America has survived the most difficult period in its history and has risen stronger than ever, ready to meet the new challenges posed by a world at war. Americans discovered that deflation leads to an increase in loan defaults and bankruptcy, which in turn leads to an increase in bank failures, which in turn leads to a decrease in incomes, a decrease in outputs, and a rise in unemployment levels. In addition, as previously stated, the Great Depression had a significant influence on Canada for the reasons discussed above. However, despite the significant consequences it had on Canada’s economy and society, as well as the fact that the Canadian government did little to address the problem, Canada, like the United States, was able to get back on its feet as unemployment levels decreased and the Great Depression came to an end.

While the New Deal’s efforts assisted the United States in preventing the Great Depression from becoming worse, only the Second World War was successful in restoring the economy and putting it back on its feet. The increase in exports brought about by the war, as well as the demand for greater military supplies, fueled the expansion of manufacturing and effectively putting an end to the Great Depression, which had lasted over 12 years since its commencement in 1929. It contained important insights, particularly on how an economy should be run and managed, and it stressed the importance of the federal government’s role in guaranteeing the stability of the nation’s economy and the well-being of its citizens, among other things.


Cheong, Kee-Cheok, Kam-Hing Lee, and Poh-Ping Lee. “Global economic crises, migration, and remittances: China and Southeast Asia during the great depression of the 1930s.” Malaysian Journal of Economic Studies 51 (2014): 45-55.

Green, George D. “The economic impact of the stock market boom and crash of 1929.” In Federal Reserve Bank of Boston, Consumer Spending and Monetary Policy: The Linkages, Monetary Conference, pp. 189-220. 1971. 2021. “New Deal”. HISTORY.

Lahcene, Batoul Sofya. “THE GREAT DEPRESSION OF 1929 IN THE UNITED STATES OF AMERICA.” PhD diss., 2010.

Martin, Joe. 2021. “Opinion | The Great Depression Hit Canada The Hardest”. Therecord.Com.

Wheelock, David C. 2021. “The Great Depression: An Overview”.

[1] Wheelock, David C. 2021. “The Great Depression: An Overview”. 10

[2] Green, George D. “The economic impact of the stock market boom and crash of 1929.” 196.

[3] Cheong, Kee-Cheok, Kam-Hing Lee, and Poh-Ping Lee. “Global economic crises, migration, and remittances: China and Southeast Asia during the great depression of the 1930s.”

[4] Joe, Martin. 2021. “Opinion | The Great Depression Hit Canada The Hardest”.

[5] Douglas, Belshaw. Canadian history: post-confederation. 8.

[6] Ibid. 8.

[7] Ibid. 8.


[9] 2021. “New Deal”. HISTORY. 1.


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