Understanding the Causes of the Great Depression

In this module on the Great Depression, you learned about some of the primary reasons that the U.S. economy was vulnerable in the years preceding the Great Depression. Some of these vulnerabilities had existed for decades and formed the foundation for many of America’s economic and social issues. Some vulnerabilities were newer or had become far more relevant during the early 20th century.

The Exploding Watermelon

Think of it like the viral video challenge with the watermelon and the rubber bands: you take a watermelon and put one rubber band around the middle at a time. Eventually, the compression from the rubber bands causes the watermelon to burst apart. The dramatic explosion is usually caused by the addition of a single rubber band, but you can’t say that one rubber band was the cause of the break. All of the other rubber bands had been squeezing the watermelon and weakening its structural integrity for some time, so when the final rubber band is added, it is just the “trigger” for the melon to explode (and for you to hopefully get a funny video). There are also other indirect factors involved in how many rubber bands you can add before the watermelon explodes: the size and density and shape of the melon, the size and age of the rubber bands, how gently you place the bands, and probably other factors such as temperature or barometric pressure or altitude that you would never even consider. These indirect factors also play a role in the explosion of the watermelon.

Cause and Effect in Historical Events

In this activity, we will look at sequencing and cause/effect in the context of historical events, then we will apply this knowledge to the causes of the Great Depression. At first, it seems relatively easy to pick out direct causes of historical events. If I asked you to tell me what caused World War I, you would probably say “the assassination of Archduke Franz Ferdinand in Sarajevo,” but it is actually never that simple when dealing with history.

The things that we think of as “direct causes” are usually more like that final rubber band on the watermelon. They may trigger the event (or series of events), but there are many other factors involved that have been squeezing and putting pressure on the situation for a long time before that final rubber band comes along.

A Combination of Circumstances

This idea of a combination of circumstances at a particular historical moment is what we see quite clearly with the Great Depression. The U.S. economy had always experienced downturns and growth, along with recessions and depressions before, and there had been previous financial crises and panics, but the reason that the Great Depression was so extreme and lasted so long can be found in the sequence of events and circumstances that caused it to begin.

Recession Triggers and Vulnerabilities

In 2010, the Chairman of the Federal Reserve, Ben Bernanke, testified before the Financial Crisis Inquiry Commission about the causes of the recession. In his testimony, Bernanke referred to two different “types” of factors that contributed to the financial crisis: triggers and vulnerabilities.^[1] Bernanke described triggers as “the particular events or factors that touched off the crisis” and vulnerabilities as “the structural weaknesses in the financial system and in regulation and supervision that propagated and amplified the initial shocks.” When we look at the causes of the Great Depression, we can clearly see the same type of situation involving a combination of existing vulnerabilities plus triggering events that caused a sort of domino effect.

In the first activity in this hack, you will learn about the causes of the Great Depression and sort them into three categories based on their chronological sequence and other characteristics. Think about these three categories and their descriptions as you read through the Worked Example below:

• Prior Vulnerabilities: events or existing conditions that occurred prior to the “trigger event”

• Trigger Event(s) or Shock(s): the event(s) that begin the ongoing situation and touch off a “cascade” of other events or conditions
• “Extending” Vulnerabilities (Aftershocks): existing vulnerabilities that are now exacerbated by the trigger event, or new vulnerabilities/conditions caused by the trigger event

Categorize the Causes

Using the above example of the “Flat Tire Saga,” we can sort these causes into categories based on Ben Bernanke’s description in the example from the beginning of the hack. The causes of the car situation include the following:

• Buying an old car
• Having high mileage in an old car
• Old tires
• Poor road conditions
• Lack of regular maintenance
• Getting a flat tire
• Driving on a flat tire
• Driving home over potholes and hitting the curb
• Driving a few weeks on a spare tire
• Shaking and wobbling car
• Not having enough money to get the car fixed

Before we begin, let’s revisit the three types of categories we’ll be working with.

1. Prior Vulnerabilities: other events or existing conditions that occurred prior to the “trigger event”
2. Trigger Event (Shock): the event(s) that begin the ongoing situation and touch off a “cascade” of other events or conditions
3. “Extending” Vulnerabilities (Aftershocks): existing vulnerabilities that are now exacerbated by the trigger event, or new vulnerabilities/conditions caused by the trigger event.

Important Note: In this example, the overall issue (car problems) was partially caused by the driver’s decision or inability to get new tires and have maintenance done on the car. However, it was also partially caused by circumstances beyond the driver’s control, like the fact that they could only afford an older used car, had to drive a lot of miles every day, and lived in an area with poor road conditions.

With historical events, it is important to note which causes of events were the result of human decisions (or human error) and which were beyond the control of the people involved. This is where it becomes especially important to remember the limits of knowledge of historical actors. The driver of the Kia Sportage probably could have foreseen that failing to replace the tires, driving home on a flat tire, and hitting a curb would have negative consequences for their car and their bank account. However, it was much more difficult for investors, government officials, business owners, and everyday Americans to see far enough into the future to predict the combination of events that caused the Great Depression since the U.S. economy is a far more complex creature than a college student’s decision-making skills regarding their old Kia Sportage.