If you did n’t live through theGreat Depressionthat start in the late 1920s and lasted until the beginning of World War II , it ’s heavy to imagine just how jolty many ordinary Americans had it . At the Depression ’s heyday in 1933 , the land ’s Gross Domestic Product had been cutroughly in half , andnearly one in four American workerswas unemployed . Since they did n’t have money to pay their mortgages , theforeclosure ratemore than duplicate and citizenry who misplace their home found themselves rear cardboard and scrap wood shacks and experience in camps be intimate as " Hoovervilles , " named after President Herbert Hoover , whom many charge for the Depression , on the edge of towns and cities . In this2007 interviewpublished by the Federal Reserve Bank of St. Louis , two homo who survived the Depression describe how people around them often were so do-or-die for food that they thirstily settle down through garbage bins at markets for discarded vegetables and spoiled poulet carcasses .
Even after Franklin Roosevelt ’s New Deal program ease some of the deprivation , the commonwealth ’s battered economy continued to struggle , correctly up until the war brought a massive surge in government disbursement and created jobs at defensive structure plants for those who did n’t go off to fight abroad , as thisarticlefrom the FDR Library explains .
Why did the Great Depression happen , and could it ever happen again ? The Depression ’s movement have been a longtime subject of argumentation by historians and economists , though there seems to be a consensus that the economical tragedy was the result of multiple factors — some of which led to the case , while others worsen or sustain it . And while the nation ’s economic system , the fiscal arrangement and government regulation have changed well since the 1920s and 1930s , experts discourage that we ’re still not immune to some of the same risks that contributed to the cataclysm . bad yet , some mistakes of that earned run average are now being replicate .
Here ’s a listing of five factors that helped lead to the Great Depression :
1. Income Inequality
Robert S. McElvaine , a history professor at Millsaps College in Mississippi and author of " The Great Depression : America 1929 - 1941 , " says that the U.S. lurch during the 1920s to an economic system heavy dependent upon consumption of mass - grow goods , ranging from motorcar to radios . While sales of those product drove up profits for mill proprietor and retailers , most American workers ' wages originate much more easy . Eventually , he notes , " hoi polloi did n’t have enough money to corrupt more thing and keep the saving endure . " Businesses tried to cope by extend consumer credit rating and allowing people to step by step yield off their purchases , but they did n’t have enough income to keep buying Modern hooey as well .
In the summer of 1929 , to avoid having stocktaking tidy sum up , factories started cutting back on production and lay off workers . " That meant they could n’t buy thing , and that led to more and more goodness piling up . " That come out the economy on a downward helix that add to afour - day stock market crashin late October 1929 , which erased a quarter of the value of the Dow Jones Industrial Average , wiping out investors and severely prejudicious public confidence . Circa-1920s income unfairness was exasperate by a serial of tax cut fight through Congress by Secretary of the TreasuryAndrew W. Mellon , ostensibly to brace the saving . As one of the world ’s robust work force , Mellon in person benefited from the undercut more than practically all the taxpayers in the country of Nebraska , as one political opponent of the bill pointed out , according to this2017 Washington Post essayby McElvaine . Ninety geezerhood afterwards , income inequality is growing , as this2018 Pew Research Center studydetails , and it ’s a scourge to an economy which reckon upon personal consumption oftwo - tierce of its economic output . And Congress in 2017 passed a massive tax cut package , which most Americans see as not benefit them , according to thisApril 8 NBC - Wall Street Journal poll .
2. Too Much Speculation
There ’s a conflict between investing and speculating , whichInvestopediadefines as place your money into high - risk investments in hopes of produce a killing . But in the 1920s , when everything seemed to be booming , investor often werea bit too rely . " Many masses retrieve of theDust Bowlor the gunstock marketplace crash as the proximate cause of the Great Depression , " saysTodd Knoop , a professor of political economy and business at Cornell College in Mount Vernon , Iowa , " But in reality , it was cause by the same factors that have make fiscal crisis throughout story , in the U.S. and elsewhere : debt - financed speculation . In other words , when people come up it too easy to borrow other people ’s money to speculate on risky ventures — stock , bond , subprime housing , etc . — then people risk too much , and prices boom only to eventually bust . " 10 subsequently , unfortunately , we ’re still vulnerable to that psychological flaw . " Markets are prone to thinking that this clip it ’s dissimilar , only to find out again and again that it is usually not , " Knoop tell .
3. Bad Federal Reserve Policy
Today , we ’re customary to thinking of the Federal Reserve , the nation ’s central bank , as the guardian of the economy . That ’s because its display panel can usemonetary insurance — control of the supply of money and credit rating — to make the economy when it need a boost , or to put on the pasture brake when pomposity is starting to creep upward . But in a2004 lecturing , former Fed ChairmanBen Bernanckedetailed his theory that 90 long time ago , the Fed leave out the ball with policy blunders that helped cause and prolong the Great Depression . Starting in 1928 , the Fed — hop to put the brakes on Wall Street speculator who were investing borrowed money — start up raising interest charge per unit . That insurance policy deliver the goods a little too well , as evidenced by the ancestry market ’s catastrophic drop in October 1929 .
4. The Gold Standard
Even after the stock market collapsed , the Fed kept increase interest rates , Bernanke note . The reasonableness was that the U.S. — like many other countries — was on the Gold Standard , imply that the dollar was cashable in Au and peg to its value . ( Here ’s anInvestopedia articleon the Gold Standard . ) When panic investors set off trading their dollar for gold , the Fed moved to frustrate them . " To stabilize the dollar , the Fed once again raise interest group rates sharp , on the view that up-to-dateness speculator would be less willing to neutralise dollar assets if they could earn a higher charge per unit of return on them , " Bernanke explained in his speech . But the high interest group rate made it tough for businesses to take up to weather the hard times , and many locomote belly-up as a result . At the same prison term , according to Bernanke , the Fed also did n’t do enough to protect the nation ’s banking company , leading depositor to out their savings and cache the hard currency , further worsening the economic crisis .
The U.S. was n’t the only country with such trouble , according toNathaniel Cline , an assistant prof of economics at the University of Redlands and an expert on economic history . " The gold standard helped things along by limiting the policy response of nations around the reality — things like low interest pace and authorities deficit spending were made much more difficult , " he aver . " In addition , while Great Britain provided spherical economical leadership before WWI , after the war the U.S. essentially refused to head despite being the fresh center of the earthly concern economy . " Fortunately , this is one field where policy Lord get wind their moral . " In the end , land swing the gold standard , and many engaged in deficit disbursement and monetary policy , and the U.S. established its leaders under the Bretton Woods agreement . " That 1944 pact create the World Bank and the International Monetary Fund , as well as eliminating the Gold Standard internationally , asthis articlein The Balance particular .
On the other hand , as a candidate , Donald Trump said that bring in back the Gold Standard " would be very hard to do , but , boy , would it be wonderful , " according to this2016 NPR story . As President , he considered put forward to the Fed display board Herman Cain , who wrote this 2012 Wall Street Journal article which advocated redefining the dollar " as a set quantity of atomic number 79 , " though in a recent interview Cain backed aside from that posture , and Stephen Moore , another preceding Gold Standard advocate , whotold CNNthat he now favour peg the currency to " whole basket of commodities . ” Both later retreat from consideration in the face of political opposition .
5. Trade Warfare
TheSmoot - Hawley Act , which was written in early 1929 when the economy was still going strong but became law after the Wall Street crash , raise U.S. tariffs by an average of 16 per centum . The idea was to keep other res publica from wound U.S. manufacturers by flooding the market place with lower - priced products , but when those countries responded by imposing their own tariff , the result was a ruinous globose decline in business deal that deepened and lengthen the Great Depression . That morsel of history worries many the great unwashed today , due to President Trump ’s affectionateness for imposing tariffs in an endeavour to protect U.S. industry , as detailed in thisMay 2019 Bloomberg article . “Whichever one of these you want to find fault for how bad the Depression was — the maldistribution of income or tariff barriers , the Trump administration seems to want to do both , " McElvaine says .
The result is that many of the gene that conduce to the Great Depression are still risk . Whether they ever will combine in an economic perfect tempest is a harder inquiry to do .
ascertain more about the Great Depression in " Riding the Rails : Teenagers on the Move During the Great Depression " by Errol Lincoln Uys . HowStuffWorks picks related to titles base on books we cerebrate you ’ll wish . Should you choose to bribe one , we ’ll receive a portion of the sale .
