Spencer Jolley Final Paper, Possible Causes for the Great Depression There is no real consensus about what

caused the great depression. The great depression was not caused by any one factor. Rather, there was a series of events that led to the great depression. There are many beliefs behind what caused the great depression. Some of the major events that were proposed for the cause of the Great Depression were: the Stock Market crash; the banking crises; the failure of credit; and World War. The Stock Market Crash of 1929 The first event that is often thought as causing the great depression was the stock market crash the last week in October, 1929. In the months before the crash, stock prices were rising rapidly. Almost across the board, stock prices were going up. Many economists began to fear that the market could not sustain the trend. They believed that there would come a point when the market prices would drop rapidly. The government feared excessive speculation and the danger of a crash. In August, the Federal Reserve erased the discount rate to attempt to slow the trend. Eventually, the market did crash. That day was October 24th 1929 (Black Thursday). By mid-November, prices fell to about half what they had been in August. The Banking System In the 1930s many of the banks were small, individual institutions that had to rely on their own resources. When there was a panic and people rushed to get their money out of the bank, the bank went under, if they did not have the funds to pay everyone back. In 1930, a wave of bank failures spread, beginning in the Southwest. From there it spread to the neighboring states. This caused the banks to crash. As depositors lined up to take their money out, banks called in loans and sold assets. This decision led to the freezing of credit. The Failure of Credit. A frozen credit system meant that less money was in circulation and that led to deflation. When prices dropped, this caused business to cut back, by laying off workers. The workers that were then laid off couldnt buy anything, causing prices to drop further. The banks werent lending any money, so companies couldnt borrow money to pay their workers, often causing companies to go bankrupt. The Effects of WWI Herbert Hoover claimed that the main cause for the great depression was World War I. The war created a series of debts owed by many European countries. The Versed Treaty caused Germany to pay reparations that they could only pay by borrowing money from American banks. The United States was also owed money by Great Brittain and France. The freezing of American credit caused a domino effect, in that the economies of countries linked to the U.S with debt, also slowed. The slowing of other countries economies caused them to buy less of American goods, and world trade as a whole slowed.