The Cause of the Depression

No depression or recession was as severe as the Great Depression of the 1930s. The U.S. didn't recover from the depression until the onset of World War II when lots of products were needed for the war effort. It began slowly. Consumer spending declined after 1927 and housing construction slowed- inventories piled up. Economy in recession by 1929. The stock market was the symbol of American wealt and business culture. However, only 10% of nation's homes owned stock (4 million people) in 1929. Stock prices rose steadily since 1921, and then increased quickly in '28 and '29. Margin buying occurred (small down payment and finance the rest with loan).

Black Thursday and Black Tuesday: 28 million shares changed hands in trading. Stock values fell from $87 billion to $55 billion. As a result, banks started to close. Great Crash was certainly a cause, but there were other causes. Farmers had never recovered from 1920 and 1921 recession. Also, there was an uneven distribution of the nation's wealth, in part due to Mellon's tax policies. In 1929, the poorest 40% of population made up 12.5% of aggregate family income, while the richest 5% received 30%.

After it began, the Depression was self perpetuating. One bank closure caused another and so forth. These are just the basics of how the Depression began. This simply touches the surface.