The Depression had several causes including speculation, overproduction, Republican policies and weak banks.
One of the causes of the Depression was speculation on the stock market caused by the rise in values of shares, and speculators are interested in short term profit, not long-time investment. This lead to stock being bought ‘on margin’, meaning that companies did not have the money they were supposed to have. The system was based on confidence and in 1929, investors began to lose this, which meant that people started selling shares at any price they could get. This meant shares in companies practically worthless and this caused the wall street crash.
Another cause of the Depression was overproduction. More goods were being made in industries like farming or cotton, than people could afford to buy, which meant prices of the goods lowered and workers lost their jobs. This meant that people like farmers could not pay off debts on their land, which meant that banks did not have the money they were owed. There were more people out of work because of overproduction, meaning that less people could buy the goods, and that overproduction continued. This had a very negative effect on the economy.
Another cause is the Republican policies. Under the idea of laissez-faire, the markets operated without the governments interference, which meant that the inequalities between the rich and poor widened. This meant that in 1929 the richest 5% owned 32% of the US’s wealth but the poorest 40% only owned 10%, so the majority of the country could not afford to buy goods. Another Republican policy was high taxes on foreign imports, which lead to the decline of trade between America and Europe, as surplus goods could have been sold abroad. This would mean that the industries would have not overproduced goods and the money would have strengthened the economy. This could have helped the people in the country and prevented the Great Depression.
A final cause of the great depression is poor banking practises. Banks loaned money to people who were buying shares in the stock market, but after the wall street crash many of these people could not pay them back. This meant that banks did not have the money they needed and some would have to close down, causing people to lose a lot of money. Due to people not paying back loans, banks had to ask businesses to pay them back, which many could not afford to do, causing the collapse of many businesses.
In conclusion, there were many causes of the Depression, which all seemed to be linked in some way. Speculation was one of the leading causes and had an effect on other causes. Speculation meant money took out loans that they could not pay back, and people often could not pay them back because of the divide created by Republican polices and losing their job because of overproduction. The statement that the Depression was caused by speculators is partially true and could be considered one of the most important causes, but is definitely not the sole cause. It was important as it caused the Wall Street Crash, which could be seen as the cause of the Depression, which shortly followed.
