Answer:
The Great Depression was a severe worldwide economic depression that lasted from 1929 to 1939. While there were multiple factors that contributed to the Depression, the following are four significant causes:
Stock market speculation and overproduction: In the 1920s, there was a surge of stock market speculation, where people would invest in the stock market in the hopes of making a quick profit. This led to a significant increase in stock prices, which eventually became detached from the actual value of the underlying assets. As a result, when the stock market crashed in October 1929, it caused a ripple effect throughout the economy. Additionally, during the 1920s, businesses expanded their production capacities, assuming that the prosperity would continue. However, when demand fell, businesses were left with excess inventory and had to cut production and lay off workers, further exacerbating the economic downturn.
Uneven distribution of wealth: During the 1920s, the gap between the rich and poor widened significantly. The wealthiest 1% of Americans owned 40% of the nation's wealth, while the bottom 93% owned only 20%. This unequal distribution of wealth meant that there was less disposable income available to the majority of the population, leading to a decrease in consumer spending, which contributed to the economic downturn.
International trade and tariffs: In the aftermath of World War I, the United States became a creditor nation, meaning that it was owed more money by other countries than it owed to them. However, in an attempt to protect American industries, Congress passed the Smoot-Hawley Tariff Act in 1930, which raised tariffs on imported goods to record levels. This led to retaliation from other countries, who also raised tariffs, resulting in a decrease in international trade and further weakening the global economy.
Banking system failures: In the 1920s, banks lent large sums of money to investors to purchase stocks on margin, meaning that investors could buy stocks with a small down payment and borrow the rest. However, when the stock market crashed in 1929, many investors could not pay back their loans, causing banks to fail. Between 1929 and 1933, nearly 9,000 banks failed, causing widespread panic and further contraction of credit, exacerbating the economic crisis.