What Started the Great Depression?
Google QuestionsAlyssa Hertig is an HNN intern and an undergraduate at the University of Minnesota.
It is widely believed that wide number of varying, pernicious aspects of American society synthesized to culminate in the Great Depression. The stock market crash of 1929 is an obvious “cause” of the Great Depression.
But what exactly spawned the crash and led to the speculation crisis? Was this simply a symptom of a much broader problem?
Other features of the Great Depression had more obvious antecedents; for example, the Dust Bowl that led to the drought and depletion of the Midwest was caused by the arid weather and dust storms—a natural disaster exacerbated by deforestation and bad farming methods. This was one of the underlying causes of the foreclosure of homes in rural America and the migration of farmers to California and other areas. It exacerbated the Great Depression tremendously.
Generally regarded as the major cause of the Depression was overproduction. When prices declined dramatically as a result, farmers went bankrupt, they lost their homes through foreclosures, and banks collapsed.
Some say capitalism failed the country and blame Calvin Coolidge and Herbert Hoover’s unwavering adherence to laissez-faire economics. However, this explanation is problematic, seeing as how Herbert Hoover implemented a policy of governmental intervention (after the crisis, granted), that markedly surpassed any of his predecessors. In the context of his times, he could hardly be characterized as a blind follower of laissez-faire economics.
The Federal Reserve System was created in 1913 to provide liqiudity to the system when the economy slowed down. But time and again the leaders of the Fed cut back on the money supply during the early years of the Depression, making matters worse. Some people argue that the very creation and existence of the Federal Reserve and this concentration of power over monetary policy led to the debacle.
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