The Economy Crashes

On Tuesday, 29 October 1929, the stock market crashed.  The people who owned once valuable shares now owned pieces of meaningless paper.  That day has since been named Black Tuesday.  Soon after Black Tuesday, the country fell into a state of depression, and while Black Tuesday was not the primary catalyst of the depression, it added to people's economic anxiety.  This period of depression has come to be known as the Great Depression.  It lasted from 1929 to 1941.

A newspaper cover of Black Tuesday from http://4.bp.blogspot.com/

A graph of the Dow Jones Industrial Average before and after Black Tuesday, from affordablehousinginstitute.org

Overproduction

One of the main causes of the Depression was overproduction.  People (specifically farmers) produced an abundance of goods and products in the prosperity of the Roaring Twenties.  At one point, however, the prices of the goods did not satisfy the wages of the job, and farmers could not afford luxuries. Eventually, the amount of goods produced surpassed the amount of goods purchased, and so as business slowed, many workers were laid off and lost their jobs and thus their only means of monetary gain.  This was perhaps one of the biggest contributors to the onset of the Great Depression, because many people's jobs had to do with farming.

The Banking System

The banking system also contributed to the onset of the Great Depression.  The banks would give out generous loans to people such as farmers and stock shareholders.  When the stock market crashed in 1929, many people could not pay back their loan and the banks could not give money to the people who wished to withdraw it.  Over 5,000 banks had to close between the years 1929 and 1932, and depositors did not get their money back when a bank closed. In this manner, many families lost all their money.

Smoot-Hawley Tariff

America and Europe were frequent traders of goods.  Imposed on 17 June 1930, the Smoot-Hawley Tariff put a very steep tax on foreign imports.  Thus, America lost a great deal of money because trade with Europe became less frequent.  America lost much revenue because of this tariff.  This was one of the biggest contributors to the onset of the Great Depression.