Causes Of The Great Depression

The Making Of Global World of Class 10

Causes Of The Great Depression


This was made worse by falling agricultural prices. As prices slumped and agricultural incomes declined, farmers tried to expand production and bring a larger volume of produce to the market to maintain their overall income. This worsened the glut in the market, pushing down prices even further. Farm produce rotted for a lack of buyers. Second: in the mid-1920s, many countries financed their investments through loans from the US. While it was often extremely easy to raise loans in the US when the going was good, US overseas lenders panicked at the first sign of trouble.


In the first half of 1928, US overseas loans amounted to over $ 1 billion. A year later it was one quarter of that amount. Countries that depend crucially on US loans now faced an acute crisis. The withdrawal of US loans affected much of the rest of the world, though in different ways. In Europe it led to the failure of some major banks and the collapse of currencies such as the British pound sterling. In Latin America and elsewhere it intensified the slump in agricultural and raw material prices.


The US attempt to protect its economy in the depression by doubling import duties also dealt another severe blow to world trade. The US was also the industrial country most severely affected by the depression. With the fall in prices and the prospect of a depression, US banks had also slashed domestic lending and called back loans. Farms could not sell their harvests, households were ruined, and businesses collapsed. Faced with falling incomes, many households in the US could not repay what they had borrowed, and were forced to give up their homes, cars and other consumer durables. The consumerist prosperity of the 1920s now disappeared in a puff of dust. As unemployment soared, people trudged long distances looking for any work they could find. Ultimately, the US banking system itself collapsed. Unable to recover investments, collect loans and repay depositors, thousands of banks went bankrupt and were forced to close. The numbers are phenomenal: by 1933 over 4,000 banks had closed and between 1929 and 1932 about 110, 000 companies had collapsed.

By 1935, a modest economic recovery was under way in most industrial countries. But the Great Depression’s wider effects on society, politics and international relations, and on peoples’ minds, proved more enduring.


(i) The depression immediately affected Indian trade. India's exports and imports nearly halved between 1928 and 1934. As international prices crashed, prices in India also plunged.

(ii) Peasants and farmers suffered more than urban dwellers. Peasants producing for the world market were the worst hit. Peasants who borrowed in the hope of better times or to increase output in the hope of higher income face ever lower prices, and fell deeper and deeper into debt.

(iii) In these depression years, India became an exporter of precious metals, notably gold. This certainly helped speed up Britain's recovery, but did little for the Indian peasant.

(iv) The depression proved less grim for urban India. Because of falling prices, those with fixed incomes-say town-dwelling landowners who received rents and middle-class salaried employees -now found themselves better off.

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