Causes of the Depression

The main trigger of the Depression was the Wall Street Crash, but other factors also helped to create the Depression out of the Crash. To understand them, you need to understand that the root of an economic depression is a reduction in spending, and that the way to end a depression is to get people to buy things:

1. Import duties - Import duties discouraged trade, which harmed the economy. The reduction in trade particularly hit the shipbuilding and railway industries if there was no trade, there was no need for transport.
2. Savings - when there is unemployment and uncertainty, people cut back on spending and save 'for a rainy day'. This then makes businesses go bankrupt and causes the unemployment they feared.
3. Unemployment - unemployed people have no wage and cannot buy things, which causes more businesses to go bankrupt and creates more unemployment.
4. Outdated practices - British heavy industry was out of date and labour-intensive. When orders dried up, the only way they could cope was to lay off workers.
5. Some Government actions made the depression worse: - The increase in unemployment meant the government was faced with a vastly increased expenditure on benefits. So in 1931, it raised income tax and cut unemployment pay by 10 per cent and introduced the means test. These measures reduced the amount of money people had to spend and made the Depression worse. - The Import Duties Act (1932) was designed to protect British industry, but this merely reduced trade and made the Depression worse.