7.4 Causes of the Great Depression

Notes

The stock market crash of October 1929 began the worst economic collapse in U.S. history.

• Buying on margin: investors borrowed most of the price of stock. When prices fell, they could not repay, and selling spread panic.
• Overproduction and underconsumption: factories and farms made more than people could afford to buy.
• Unequal wealth: a small share of families held much of the nation's wealth, so most could not keep buying.
• Bank failures: about 9,000 banks failed from 1930 to 1933. With no deposit insurance, savers lost everything.
• High tariffs: the Hawley-Smoot Tariff (1930) led other countries to raise their own tariffs, so world trade shrank.
• Example: a buyer who paid $100 of his own money and borrowed $900 for $1,000 of stock is wiped out if the stock falls to $900, and still owes the loan if it falls further.