There were multiple causes of the Great Depression that spread across different countries in the mid-1940s. These causes may include just mentioningbut a few, world war one, fall in stock prices, bank failures, reduction in purchasing across board, economic policy and drought conditions. These form the backed up causes that are supported by sufficient theories to help explain the possible causes of the Great Depression as discussed below.
To begin with, the World War One contributed greatly to the Great Depression. The United States entered the war in the late 1917 and thereafter emerged as the major creditor and financier of the post-war restoration. Different countries like France, Germany and Britain needed to rebuild after the war. Germany for instance was burdened with massive war reparations. US banks offered to loan them money. Later when the banks started falling, they needed the money back, a move that caused a lot of financial pressure on the European economy which apparently had not fully recovered from the war. This greatly affected the European economy and that of US paving way for the Great Depression that hit the countries.
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The fall in the stock prices was another major cause of the Great Depression. During the 1920s, the US stock market underwent rapid expansion to reach its peak. By this time production had already declined and employment had raised leaving stocks in far much great excess of their actual value. The low wages, the proliferation of debt, a struggling agricultural sector and excess of huge bank loans that could not easily be liquidated all resulted to a drastic drop in the stock prices far much below the expected values. This made the market to go into a free fall resulting to loss of billions of dollars, several investors were wiped out contributing to the depression.
In addition, the bank failures also help explain the cause. After the drastic fall in the stock prices, millions of Americans began to withdraw their money with fear that the banks would fail. Several banks were put on peril. The fear of failing grasp them and indeed the more money were withdrawn by their respective clients, the more the banks deed failed. Likewise the more the banks were failing, the more the Americans insisted in withdrawing their money and thus this generally led to a drastic failure of several banks in the United States. The move saw several banks collapsing leaving a few also very unstable. This collapse of banks and Americans withdrawing their money from the collapsing banks contributed greatly to the rising of the Great Depression that spread across the country and beyond.
The reduction in purchasing across boards is another factor that helped contribute to the Great Depression. With the stock market crush and fears of further economic woes, Americans from across all social classes stopped purchasing items leading to reduction of the number of item produced which further resulted to a reduction to the labour force. The reduction in labour force further resulted to lose of jobs which made several people unable to pay for the goods they had purchased through credit or through instalment plans. These items were thus repossessed and this was the only way possible to prevent further losses. Loss of jobs rendered many jobless leaving them with no option but to evade further expenditures thus they opted to evading purchase of items. This significantly led to the depression.
To add on these, the economic policy that is the American economic policy with Europe to be precise accelerated the occurrence of the Great Depression. When the government realized that the businesses were beginning to fall, it created the Smoot-Hawley tariff in 1930 to help protect American companies against suffering the same. This charged higher tax on imports with an aim to protect the local companies from harm. The high tax on imports resulted to reduction of trade between America and other countries along with some economic retaliation. Other countries could not keep up with the high tax levied on their exports to America since they realized the harm the move was causing to their exporting companies. They thus resorted to engaging in very little trading with America a move that mutilated American economy as well as there was resultantly little tax received from the imports. This arguably contributed to the occurrence of the Great Depression.
The drought condition also adversely contributed to the occurrence of the Great Depression. When the drought began at around 1930sit worsened the already poor economic condition of the time. Agriculture was greatly affected with the drought hitting the farmers in the Great Plains the hardest. Many of them had no alternatives but to seek for government assistance. Many of them could not thereafter continue with their operations and were forced to leave their land. Some went to seek alternative sources of income to fend for theirfamilies,others resorted to deeded their farms to creditors while others faced foreclosure by banks. The drought greatly affected the expansion of agricultural sector and many farmers suffered massive losses. Agriculture forming the backbone of the economy, having been affected generally led to drastic fall in the entire economy at large. This too contributed to the rising of the Great Depression.
In conclusion, from the above discussion, it is arguably clear that several factors as discussed in one way or the other greatly contributed to the occurrence of the Great Depression.
Quadagno ,J. (1984) American Sociological Review.
Roosevelt ,F .(1935) FDR Social Security Act.