Class 10 History

Making of a Global World: Great Depression

The Great Depression played havoc with the world economy in the 1930s. Following are the main reasons for Great Depression.

Causes of Great Depression

Agricultural Overproduction

Agricultural overproduction was a major problem during the 1920s. More supply of farm produce resulted in lower price. Farmers tried to compensate by producing even more. This created a glut of farm produce in the market; leading to further fall in prices. Farm produce rotted because of lack of buyers.

Withdrawal of US Loans

Many European countries heavily depended on US loans. But the US lender panicked at the first sign of trouble. In the first half of 1928, the US loan amounted to $ 1 billion. But within a year, it was just a quarter billion dollar. Withdrawal of US loan affected many countries in various ways.

This led to the collapse of many banks and currencies in Europe. The British Pound Sterling also crashed during this period. The Agricultural market slumped in Latin America. The US tried to protect its economy by doubling its import duties. It also had deleterious effect on the world economy.

The US was most severely affected by depression. Prices were falling and economy was in bad shape. The US banks slashed domestic lending and called back loans. Household incomes fell and many people were not in a position to repay the loan which they had taken to buy homes and white goods. Unemployment level increased and banks were unable to collect loans. Thousands of banks in the US went bankrupt. By 1933, over 4000 banks had closed. Between 1929 and 1932, about 110,000 companies collapsed in the US.

In most of the economies, a modest recovery began by 1935.

India and the Great Depression

The Depression affected the Indian economy as well. Between 1928 and 1934, the imports and exports of India became nearly half. During this period, the wheat prices in India fell by 50%.

In spite of falling prices of farm produce, the government continued to demand the same revenue from the farmers. Thus, farmers were the worst sufferers in this situation. Many farmers were forced to utilize their savings, sell their lands and jewelry. Thus, India became a net exporter of precious metal during this period.

The depression proved less grim for the urban dwellers in India. With falling prices, many urban landowners and salaried people found the life much easier. Under pressure from the nationalist leaders, the industrial protection grew which led to more investment in the industries.