Question

Explain the causes of the Great Depression.

Answer 1

Hint: The Great Depression began around 1929 and lasted till the mid1930s. Most parts of the world experienced catastrophic declines in trade, production, income, and employment during this period.

Complete Answer:
The impact and exact timing of the depression varied across countries. Agricultural regions and communities were the worst affected in general. This was because the decline in agricultural prices was more prolonged and greater than that of the prices of industrial goods.

There was a combination of several factors that caused the Great depression. These were as follows:-
The post-war world economy was very fragile. Falling agricultural prices made the problem of Agricultural overproduction worse. As the prices and agricultural incomes declined, farmers tried to expand production to maintain their overall income and bring a larger volume of produce to the market. This worsened the situation and pushed down prices even further lower. Farm produce rotted because of a lack of buyers.

Many countries financed their investments through loans from the US in the mid-1920s. While it was often extremely easy to raise loans in the US, US overseas lenders panicked at the first sign of trouble. US overseas loans amounted to over 1 billion dollar in the first half of 1928. It came to one-quarter of that amount a year later. Those countries that depend crucially on US loans now faced an acute crisis.

Though in different ways, the withdrawal of US loans affected much of the rest of the world. It led to the collapse of currencies, such as the British pound sterling in Europe, and the failure of some major banks. It intensified the slump in raw material and agricultural prices in Latin America and elsewhere. Another severe blow to world trade was the US's attempt to protect its economy in the depression by doubling import duties.

The US was also among one of the most severely affected industrial countries by the depression. Unable to collect loans, repay depositors, and recover investments, thousands of banks went bankrupt and were forced to close.

Note:
A modest economic recovery was underway in most industrial countries by 1935. But the Great Depression’s wider effects on politics and international relations, society, and on peoples’ minds, proved more enduring.