Economists are still divided about what caused the Great Depression. A sharp economic recession was stretched into a decade-long nightmare by a combination of numerous factors:
- The post-war building boom was coming to an end
- A glut of consumer goods had flooded the market
- Americans were carrying a heavy debt load even before the crash
- Average worker’s wages of $1,500 a year had failed to keep pace with spectacular gains in productivity during the 1920s
- Industrial production had outstripped consumer demand
- U.S. banks had played the stock market with depositors' funds and/or speculated in their own stocks
- Only one third of U.S. banks belonged to the Federal Reserve System
- No insurance was available for the jobless nor income maintenance for the destitute
- Agriculture had suffered through a depression in the 1920s already, leaving a abroad segment of the population without cash or savings
- A severe drought in 1930 had ravaged the agricultural heartland
- The rise of unemployment caused buying power to vanish almost overnight
Commitments from business and industry to keep wages steady and jobs secure lasted little more than a year. Panicked Americans simply stopped spending and frantically withdrew any savings from the banks before they closed. Desperate banks called in loans and mortgages, causing many Americans to lose their homes, farms and all they owned. Domestic and foreign banks collapsed, and world trade was severely damaged.
Unemployment soared from five million in 1930 to over eleven million in 1931. A sharp recession had become the Great Depression.