History of the American Economy: Causes of the Great Depression

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The Great Depression
The great depression of the 1920s is still unbeaten to be one of the worst, most severe, and longest economic downturn of modern history. Surpassing more than five years this incident did not only affect the United State only but other regions of the world. It was characterized by deflation that is a sharp reduction in prices and production levels, there was an increase in poverty, an increase in unemployment and individuals lost their homes. The United States felt the effect the most, with its GDP (Gross Domestic Product) fell with 30 percent and unemployment increased with 3.2 percent and the nation was literally paralyzed. The phenomenon was devastating and up to date has continued to attract attention from researchers, historians, economist, and scholars. The most touched upon question on the subject is the main cause of the depression. Many studies have come up with different causes of the incidence together with evidence of their stand. There has been agreement on a number of factors that led to depression especially those that are related to the financial system. The following text is going to look at the same question and try to answer what was the main cause of the depression and why this period lasted so long.
Causes of the Great Depression
The exact cause of the great depression has not been agreed upon yet; this is because the incidence is observed to have been caused by many factors. Thus, a number of factors have been blamed for this devastating period. It began as a normal economic downturn where the nation experienced a recession but the given factors turned this recession into the catastrophic event, which made history. Although there have been arguments on what caused the depression, most scholars have agreed on the following factors to be the main cause of the great depression: the crash of the stock market, banking crises, growing inequality of income, economic distortions, and the Smoot Hawley tariff.
The Crash of Stock Market: In 1929, the last week of October the stock market experienced its first blow and a massive decline was experienced (426). This was a bad activity since the economy was already in recession. The problem started when the stock levels prices rose to unprecedented levels making the sector an easy place to invest and individuals used their fortunes on the sector. However since most of the investments were from loans, when the stock prices started dropping inves...