The Great Depression was the largest economical disaster ever to have happened. Unlike World War One, fifteen years earlier, the great depression had an astronomical effect world wide. The economist Hobsbawm (1995) describes the depression as 'the world's largest earthquake' in economical terms. Indeed the effect of this global economical demise was immense. There are numerous reasons that led to and caused the Great Depression, but undoubtedly the biggest contributor of the slump came in 1929 when the American stock market crashed. The Wall Street Crash of 1929 sent shock waves through all the economies of industrialised nations, and plunged the Capitalist system into the worst economic slump in history. This essay will attempt to consider the effect of the Wall Street Crash in causing the Great Depression, but also consider other causes such as the massive unequal distribution in income that existed and the lasting effects of the war in the form of debts owed to the US.

To understand the sheer consequence of the Great Depression we can consider a normal economy. Most

 Feinstein.C. Temin,P and Tonolio,G (1997) The European Economy Between The Wars Oxford, OUP

b) The American economy flourished during the 1920s. However, it was really quite frail. It relied on two industries: automobile and radio. It also relied on European trade. However, all European purchases were made with money being borrowed from the US. If the lent money was not returned, the US would have struggled

 Anderson,A. (1991) Economics Second Edition Lancs, Causeway Press Ltd.

 Dee,M. (1998) Quote Unquote - The Harvard Referencing System Published Material LMU

Within a matter of months production had grinded to a halt. Between October and December, industrial production had fell by a staggering 9% (5). By 1930, unemployment had risen to five million, and it continued to rise until 1932, where unemployment peaked at thirteen million (6). However, the devastation did not stop in America. The Wall Street Crash sent shock waves across the world, effecting all economies world wide. Europe was still recovering from the after effects of World War One. It had suffered periods of high inflation and high unemployment. During the late twenties, however, the European nations, made a small recovery. Again this recovery was artificial. The European nations such as Germany, Britain and France were only able to do this through borrowing from the US. If it was not for the loans from America, the European nations would have struggled to recover. By 1920, after the war the US had lent the European nations a total of 10.3 billion dollars and another 2.15 billion after the Dawes Plan in 1924 (7). Infact an amazing ninety per cent of that which was borrowed was then used to buy US goods. The US relied heavily on foreign trade, and it made up a vast sum of its total income. To make the situation worse the US increased the tariffs on imported goods, to protect domestic businesses. In 1930 they introduced the Hawley-Smoot Tariff, which was the highest ever level of tariff. This basically meant European goods could not be sold in large enough quantities to help them survive. As well as the increased tariffs, America called upon all of their loans to be returned. This single move devastated Europe again. They could not afford to pay back the loans without putting their economies into turmoil. This in turn, meant these countries could no longer afford American goods and within months, the US lost one and a half billion dollars of their usual income. This in effect was equivalent to losing one eighth of their total income. Of course, the same pattern happened ac

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Approximate Word count = 1744
Approximate Pages = 7 (250 words per page double spaced)