What Caused the Great Depression

What caused the Great Depression The Stock Market Crash reflected an economic weakness that proved to be fatal : over confidence in the stock market . Americans found the stock market an avenue for productive investment because of the rapid growth in the stock market . In the belief that the value of stocks will continue to rise , and they can earn a profit from it , even the less fortunate gambled on the stock market . Investors paid only a small part of the price and borrowed the rest , gambling that they could sell the stock at a high enough price to repay the loan and make a profit. By 1929 , the real GNP is up 38 percent. Americans focused on getting rich ' and enjoying this prosperity . This has seemed to benefit the economy because industries produced vast quantities of goods to meet the growing demand for consumerism . However , the industry boom will continue as long as people can consume all the goods that these industries have produce. income is not distributed evenly and as such , a large majority of people cannot afford to buy the goods promoted by advertisements . Credit was therefore introduced to allow people to purchase the goods they wanted . The time came when people have accumulated enough debt that they can no longer afford to buy newer products . People have to stop spending all together because much of their income goes to paying for the old products they have purchased using credit . Hence , the supplies and goods of industries can no longer be sold and started to pile up which resulted to a collapse in the industries.
The American Smoot-Hawley Tariff Act of 1930 which adopted a protectionist trade policy made the situation worse. It was seen as a purely domestic measure to prevent the further fall of prices , but it provoked immediate retaliation by other governments and contributed to the contraction of international trade. Thus , the protectionist trade policy of the United States paved way for other countries to adopt the same