What were the causes of the Great Depression?

Learning objective – to prioritise the main causes of the Great Depression.

I can describe the main causes of the Great Depression.

Grade D

I can explain and make links between the main causes of the Great Depression.

Grade B/C

I can explain and analyse the causes of the Great Depression and can reach a substantiated judgement about their significance.

Grade A/A*

Starter – during the prosperous years of the 1920s, what percentage of the US population

were judged to be living below the poverty line in 1928?

Starter – during the prosperous years of the 1920s, what percentage of the US population

were judged to be living below the poverty line in 1928?

According to a government survey in 1928, 60% of families were earning below $2,000 a year and therefore living below the poverty

line.

What were the key causes of the Great Depression?

Unequal distribution of wealth

Overproduction and underconsumption

The international economic situation

Government policy

Weaknesses of the banking system

The Wall Street Crash

Unequal distribution of wealthNot everyone benefitted from the prosperity of the 1920s.

5% of the population owned 33% of the country’s wealth.

60% of the population lived below the poverty line.

Significant areas of society such as farmers and African-Americans missed out on prosperity.

Because the economy was based on low wage earners, it lacked the demand to buy the large number of goods that were being produced.

Overproduction and underconsumptionThe mass production techniques adopted by businesses in US allowed many goods to be made. But there was not enough people able to buy them.

Therefore, there was too many goods being made and too few people able to buy leading to unsold goods. Because businesses could not sell the goods they made, profits fell.

Overproduction and underconsumption

From 1928, businesses cut down on production which led to laying workers off. With rising unemployment, less people were able to buy goods. This fall in consumerism, led to falling profits which in turn led to more workers being made unemployed.

The international economic situationThe US international market was limited by its Fordney-McCumber tariff of 1922, which placed an extra charge on imported goods.

Although this encouraged Americans to buy American produced goods, this blocked international trade as it put off other countries trading with the USA. This was exacerbated by the Hawley-Smoot tariff of 1930.

Government economic policyThe government economic policy throughout the 1920s was called Laissez Faire – this means ‘Leave Alone’.

This lack of government controls lead to excessive spending and share speculation. This meant that people were spending money they did not have as well as a false value of many businesses.

Weaknesses of the banking systemThe banking system in America was made up of thousands of small, local banks rather than large nationwide banks.

This meant that these smaller banks lacked cash reserves to survive a downturn in the economy and a run on the banks – lots of people wanting to draw their money out at the same time.

Even before the depression, over 5,500 banks closed between 1921 and 1929, because they lacked cash reserves as well as ill-advised investments.

The Wall Street CrashWall Street was the site of the largest stock market in America.

It was also the site of the largest downturn in the US economy over a few days in October 1929 when the value of shares crashed and the Great Depression began.

TaskImportant Less

important

Draw the continuum line into your exercise books and mark on it the main causes of the Great Depression where you think it should be on this line. Write a two sentence explanation for each cause underneath the line.

•Unequal distribution of wealth•Overproduction and underconsumption •The international economic situation•Government policy•Weaknesses of the banking system •The Wall Street Crash