LONG TERM CAUSES OF THE GREAT DEPRESSION

1929-1941

1. INDUSTRY

Certain industries were no longer making profits (railroad, steel, and coal), due to foreign competition (Why would European industries be cheaper?)Also, new sources of energy caused the decline in the use of coal. New home construction also declined, which had a trickle down effect on other industries such as lumber, furniture, and appliances.

AGRICULTURE

Farming suffered the most throughout the 1920s. (result of World War I)

During WWI, farmers grew a surplus of food. To meet the demand farmers took out loans to buy more land or equipment. However, after the war, demand for farm products fell. This also led to the closing of small banks because farmers could not pay back their loans after the war.

CONSUMER SPENDING

The 1920s seems prosperous for most Americans, but most were actually living beyond their means. Many lived on credit, “buy now and pay later” (installment plan). This created large debt, which led to consumers cutting back on spending.

UNEVEN WEALTH DISTRIBUTION

“The rich get richer, and the poor get poorer.”

Top 5% of Americans controlled all of the wealth in the nation. Whereas, nearly half of the nation’s families earned less that $1,500 per year, then considered the minimum amount needed for a decent standard of living.

STOCK MARKET

Many investors engaged in speculation, the buying and selling of stock to make a quick profit, and buying on margin, paying a small percentage of a stock’s price as a down payment and borrowing the rest. This generated great wealth, but only on paper. People believed that stock prices would continue to rise, so they could sell the stock, make a profit, and still pay off their debt from buying on margin.October 29, 1929- Black Tuesday- The stock market crashes & the Great Depression begins!