Clever Grades

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CAUSES AND IMPACTS OF THE GREAT DEPRESSION

The causes and impacts of the Great Depression form a critical chapter in US history, representing the most severe economic crisis in the country’s history and prompting transformative government intervention through the New Deal.

Primary Causes of Economic Collapse

The Great Depression, beginning in 1929 and lasting through much of the 1930s, had a variety of causes that combined to create a devastating economic collapse.

1

Overproduction and Surplus

US agriculture and industry produced goods often more than the market demanded. This led to surpluses that drove prices down, hurting farmers and manufacturers.
2

High Tariffs

The Hawley-Smoot Tariff Act of 1930 provoked retaliatory tariffs from other countries, reducing international trade and deepening the global economic slump.
3

Availability of Easy Credit

Widespread borrowing (installment plans, stocks on margin) increased household and business debt. Many could not repay debts when incomes or investment values dropped.
4

Over-Speculation

Rampant speculation in the Stock Market artificially raised prices until the bubble burst dramatically in the “Great Crash.”
5

Bank Failures

The Crash led banks to face insolvency. Panicked depositors caused bank runs, and thousands of banks failed between 1930 and 1933.

Widespread Societal Impacts

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Rising Unemployment

By 1933, about 25% of the workforce was unemployed. African Americans faced higher unemployment rates compared to white Americans.
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Homelessness/Migration

Rise of makeshift shantytowns called “Hoovervilles.” The Dust Bowl disaster pushed displaced families westward.
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Family Separation

Large numbers of Mexican Americans and individuals of Hispanic heritage were deported or “repatriated” to Mexico.
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Decreased Activity

Factories closed or cut production, contributing to decreased economic activity and hardship.

Hoover's Administration

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Rugged Individualism: Hoover favored limited government intervention, believing the economy would self-correct and that direct federal relief would undermine individual initiative and create dependence.

Hoover's Attempts at Relief

Hoover authorized some federal measures despite his core philosophy, mostly aimed at stabilizing institutions.

Act Year Target Purpose
RFC 1932 Banks/RRs Provided government loans to large businesses (Critics: favored big business)
ERC Act 1932 States Provided federal funds for public works projects and relief programs.
FHLB Act 1932 Home Lenders Supported banks that made home loans to prevent foreclosures.
Bonus Army 1932 WWI Vets Rejected early bonus payment demand, ordered the Army to evict protesters forcefully.

FDR’s Response: The New Deal

The Three Rs Framework

Elected in 1932, FDR launched sweeping reforms focused on Relief (for the poor), Recovery (of the economy), and Reform (of the financial system). His style was proactive and experimental.

First New Deal Policies (1933–34)

Key legislation launched during the crucial First Hundred Days of the administration.

1

Emergency Banking Act

Temporarily closed all banks ("bank holiday") to stem panic withdrawals, restoring public confidence.
2

Agricultural Adjustment Act (AAA)

Paid farmers subsidies to reduce agricultural overproduction and raise crop prices.
3

NIRA / PWA

Sought industrial recovery through fair practice codes and created the Public Works Administration (PWA) for infrastructure.
4

Tennessee Valley Authority (TVA)

A government project developing the Tennessee Valley region for flood control and electricity generation.

Key Banking Reform

Glass-Steagall Banking Act
Separated commercial and investment banking activities and created the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits and prevent future bank runs.

Second New Deal (1935–36)

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Works Progress Administration (WPA)

A large-scale public works program creating millions of jobs in construction, arts, theater, and literacy projects.
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Wagner Act

The National Labor Relations Act confirmed workers’ rights to unionize and bargain collectively, empowering labor.
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Social Security Act

Landmark reform establishing a federal safety net: pensions for the elderly, unemployment insurance, and aid to disabled people.

Opposition to FDR’s Policies

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Liberal Left ViewFelt the New Deal did not go far enough to redistribute wealth (e.g., Huey Long called for wealth caps and direct aid).
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Conservative Right ViewArgued the New Deal expanded federal power too much, threatened free enterprise, and created a dependency culture.

Supreme Court Challenges

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Why did FDR propose the controversial "court-packing" plan in 1937?
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Because the Court initially struck down key programs (AAA, NIRA), ruling they exceeded federal authority and limiting the administration's reforms.

Enduring New Deal Legacy

Impact Area Key Outcome
Political Realignment Formed the durable New Deal coalition (labor, urban voters, African Americans).
Government Role Greatly expanded the role and power of the federal government, especially in regulating the economy.
Social Welfare Established the precedent that the government should actively maintain economic stability and social justice.
Modern Foundation Laid the foundation for the modern welfare state.
Causes and Impacts of the Great Depression
Q
Economic Imbalance

What was one major economic imbalance that contributed to the Great Depression?

A
Answer

Overproduction and surplus in agriculture and industry.

Q
Hawley-Smoot Tariff Act

How did the Hawley-Smoot Tariff Act worsen the Great Depression?

A
Answer

It raised tariffs, leading to retaliatory tariffs that reduced international trade.

Q
Easy Credit

What role did easy credit play in the Great Depression?

A
Answer

It encouraged heavy borrowing and stock market speculation, leading to widespread debt and financial collapse.

Q
Stock Market Crash

What was the significance of the stock market crash in October 1929?

A
Answer

It wiped out massive wealth, triggered bank failures, and started the economic collapse.

Q
Rugged Individualism

What was “rugged individualism” in Hoover’s response to the crisis?

A
Answer

A belief that people should solve economic problems without heavy government intervention.

Q
New Deal Policy

Name one New Deal policy aimed at providing relief to unemployed Americans.

A
Answer

Works Progress Administration (WPA).

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Social Security Act

How did the Social Security Act impact American society?

A
Answer

It created a federal safety net through pensions, unemployment insurance, and aid to disabled people.

Q
Agricultural Adjustment Act

Why were farmers hurt by the Agricultural Adjustment Act despite its subsidy payments?

A
Answer

Because it reduced production by paying farmers to leave land unused, sometimes leading to food destruction amid hunger.

Q
Unemployment Rates

What was the effect of the Great Depression on unemployment rates?

A
Answer

Unemployment rose to about 25%, with higher rates among African Americans.

Q
Dust Bowl Migration

How did the Dust Bowl influence migration during the Great Depression?

A
Answer

It caused many farming families to migrate westwards seeking work.

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🌸 Causes and Impacts of the Great Depression Quiz

1. What was a major economic cause of the Great Depression?

Excess goods depressed prices and incomes, especially hitting farmers and manufacturers.

2. The Hawley-Smoot Tariff Act led to:

Other countries responded with their own tariffs, reducing trade globally.

3. Which policy was part of Hoover’s response to the Great Depression?

Hoover’s RFC focused on loans to banks and big businesses, not direct aid to individuals.

4. The stock market crash of 1929:

Banks lost money in stocks and faced runs, causing failures.

5. Which New Deal program provided pensions and unemployment insurance?

It established a safety net for the elderly, unemployed, and disabled.

6. Why did many Americans live in “Hoovervilles” during the Great Depression?

The shantytowns symbolized the poverty and hardship of the era.

📊 Results

  • Notes and Quiz
  • US History since 1877
  • AS Level
  • The 1920s & 1930s
  • CAIE