What caused the Great Depression in the 1930s?

Economists generally agree that the Great Depression was caused by a combination of several interconnected factors rather than a single event. While historians debate the weight of each, these are the primary causes:

• The 1929 Stock Market Crash: The crash in October 1929 shattered consumer confidence and wiped out billions of dollars in wealth, leading to a massive decline in spending and investment.
• Bank Failures: Throughout the early 1930s, thousands of banks failed. Because there was no deposit insurance at the time, people lost their life savings, which caused a collapse in the money supply and further paralyzed the economy.
• Reduction in Purchasing Power: As businesses failed and unemployment rose, consumer spending plummeted. This created a vicious cycle: falling demand led to more layoffs, which led to even less spending.
• American Economic Policy: The Federal Reserve restricted the money supply in an attempt to curb speculation, which inadvertently made it harder for banks to stay afloat and for businesses to borrow money during the downturn. Additionally, the Smoot-Hawley Tariff Act of 1930 increased taxes on imported goods, triggering retaliatory tariffs from other countries that decimated global trade.
• The Dust Bowl: Severe drought and poor farming practices in the American Midwest devastated the agricultural sector, causing widespread poverty and forcing many farm families to abandon their homes.

These factors together created a "perfect storm" that turned what might have been a standard recession into a prolonged, global economic catastrophe.