Historical Context: The Causes of the Great Depression

Historical Context: The Causes of the Great Depression

Essential Question: What Caused the Great Depression?

As you read "What caused the Great depression?" annotate the text and answer the questions

Directions:

A young man in a federal work program was interviewed in Birmingham, Alabama, in 1934: "For a few weeks it isn't so bad for a man and his wife and a baby to get along on $4.80 a week, paying $3 of it out for rent. But when it runs into months--and you can't see anything better ahead - you get damned discouraged."In Chicago, train riders reported seeing men and women searching for scraps of food in garbage cans and refuse piles behind restaurants. A western rancher explained that he had just killed 3000 sheep and thrown them down a canyon, because it cost $1.10 to ship a sheep to market, and then he couldn't sell it for even a dollar. On a cold mountain morning in the early 1930s, a young Appalachian school girl did not look well. Her teacher approached her desk and urged her to go home and get some food in her system. "I can't, said the little girl, it's my sister's turn to eat."

02:30

This was the underside of America in the 1930s. Not everyone was in such desperation, but millions were struggling. Just a few short years earlier, the country had been filled with the excitement of Yankee baseball, soaring stock prices, and the promise of a Ford in every garage. What happened to those Roaring Twenties? What had gone wrong?The causes of the Great Depression are, at their core, economic questions. For years, economists and historians have searched for answers. While there is general agreement that the Depression had multiple causes, there is debate about which ones were most important. To understand the roots of the Great Depression, let’s start with some basic economic principles—think of this as a quick Economics 101. We’ll begin by covering four foundational ideas. One of the most fundamental concepts in economics is the law of supply and demand. This law states that if the supply of goods increases while consumer demand stays the same, prices will drop. Conversely, if consumer demand increases—imagine everyone suddenly wanting the latest Nike shoes—and supply remains unchanged, prices will rise. One benefit of this principle is that it should prevent the overproduction of goods. If you manufacture more Nikes than people are willing to buy at $80 a pair, you simply lower the price, and increased demand will eventually clear the surplus.

Another theory, known as Say's Law, predicts that any surplus will eventually disappear because prices will drop until all goods are sold. Most economists and politicians in the 1920s firmly believed in this idea. They thought that government intervention was unnecessary—if left alone, the law of supply and demand, together with Say’s Law, would solve any problems in the economy.

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