What Caused the Great Depression in the 1930s?

The stock market crash on Oct. 24, 1929, triggered the start of the Great Depression, but a combination of poor economic management and lack of government intervention caused the lasting recession. The economic prosperity of the 1920s led to overconfident spending and investments, making American businesses and citizens unable to recover from debt when stock values, consumer spending and employment rates plummeted.

In the 1920s, the rapid rise of stock values drove economic growth and made overnight millionaires while motivating lenders to extend credit more freely. Confidence in positive market trends encouraged speculators to borrow money at excessive interest rates, and middle and lower class families relied heavily on credit for appliances and cars. As a result, the income gap widened, and the wealthiest one-percent of Americans controlled more than one-third of all assets. Eventually, investing rose disproportionately to consumer spending as Americans tapped out their resources and businesses expanded without paying higher wages.

The market crashed when stocks failed to rise as expected, causing massive selling and a chain reaction of bankrupt businesses and financial institutions. Factories closed and layoffs skyrocketed, while economic troubles in Europe limited America’s ability to rely on international commerce. High borrowing rates led to economic crisis when debtors could not satisfy their agreements, and farmers suffered from low prices and drought. Instead of responding proactively, President Herbert Hoover insisted that the depression would end within 60 days. He rejected the idea of offering aid to displaced workers and chose to offer bailout programs to banks in hopes of reviving business.