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In the 1920s the economy of the United States was attaining new heights of prosperity as it emerged from World War I as a creditor nation with productivity and economic growth Biles 5 During this time speculation caused many to buy stocks with loaned money and they used these stocks as collateral for buying more stocks Loans from brokers went from under five million in mid 1928 to 850 million in 1929 Causes Because the stock market was based on barrowed money and false optimism it was very unsteady When the investors lost confidence the stock market crashed in 1929 This signaled the coming of the Great Depression The Great Depression is defined as a time period during the 1930s when there was a worldwide economic depression and mass unemployment Princeton University This period was the longest and worst period of high unemployment and low business activity in modern times Banks stores and factories were closed and left millions jobless homeless and penniless There are many factors to what caused the Great Depression Short signed government economic policies were one of the factors that led to the Great Depression The belief of politicians was that business was the key to America For this belief the government took no action against unwise investments There were high tariffs passed by Congress that protected industries but they hurt farmers and international trade According to Robert McElvaine author of The Great Depression the law of compensation was one of the causes of the Great Depression In other words the economy needed to rest periodically Another cause was the mild decline in the money stock from 1929 to 1930 McElvaine 27 The distribution of wealth was very unbalanced with the rich acquiring more Deflation was another cause its cure was inflation and the proper place to start the recovery mechanism was by expanding the money supply Romasco 36 Oversupply and inability of consumers to buy the products also caused problems
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