Great Depression: Domestic and Foreign Causes


According to the American history the great depression occurred in 1930s before the Second World War. This decline in the economy was worldwide but it started in America on October 29, 1929 with a crash on the stock market. Price of commodities, profits and government tax revenue declined1.Countries that depended on agriculture and heavy machineries were the most affected. This is because prices of farm produce dropped by sixty percent and construction in most countries stopped. In addition the great depression affected the level of employment. In America level of unemployment increased to twenty percent. This essay discusses the domestic and foreign causes of the great depression in the history of America. It also looks at how president Hoover responded to the economic emergency.

Domestic causes of the great depression

The stock market Crash of 1929

During what historian call the black Tuesday on October 29 1929 there was a stock market crash. This crash is known to be the major cause of the great economic depression. Stockholders lost their money about $forty billon dollars. The level of interest rates declined leading to a decline in level of investment.


In 1930 there was a drought along the Mississippi valley. This also contributed to the great depression because it affected agriculture. Level of crop production was low and prices of crops were low.Therefore farmers had to borrow money from banks for consumption. They were not able to pay taxes and debts. This led the farmers to selling their farms at a loss because few buyers were willing to buy them due to the drought and also lack of capital.

Bank Failures

The failing of banks contributed to the great economic depression. Borrowers were not able to pay their debts and therefore bank deposits were not insured and so they were not willing to lend loans. Due to lack of funds most banks were closed. The surviving banks made few loans and this lead to deflationary pressures. This situation lowered expenditures as well as capital investments.

Reduction on purchases

The crash of the stock market contributed to individual stopping to purchase commodities. This led to decline of prices and quantity of production due to low demand. People lost jobs because of low production and producers’ profits were low. They were also not able to purchase raw materials or pay the workers.

Foreign cause of the great depression

American imposing tariff on imports

When the business and banks started failing the American government created tariff to imports. This tariff leads to high tax being imposed on imports. It hence leads to America not trading with the neighboring countries. Its economy suffered due to low supply of products.

Decline in international trade

Kelly asserts that there was a decline in international trade. Countries that depend on foreign trade suffered. For example those that import farm products faced a decline in supply of crops. However the countries level of earnings from foreign exchange also decreases. Therefore they suffered economically.

President Hoover’s response to the economic emergency

The president persuaded management to maintain salaries. In addition he controlled over private banking. He advocated for use of common stocks as security for customers deposit. In general he worked hard to increase public works and also to have a balanced budget.


The great depression had effect at all countries. These effects were seen in some countries even after world war two. Therefore countries should try to avoid factors that can cause such an economic depression. Governments should ensure the countries budget is balanced.


  1. Kelly, Martin. N.d. “Top 5 Causes of the Great Depression.” Web.
  2. Profiles of US presidents. N.d. “Economic collapse”.
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