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While the stock market crash of 1929 marked the start of the crisis, it wasn't — contrary to popular belief — the sole reason for it. Many other factors combined to create the Great Depression, from ill-timed tariffs to misguided moves by the young Federal Reserve.
Even worse, many people bought shares on margin, generally needing just 10% of a stock's price to make a purchase . That, in, turn, inflated prices, with shares selling for more money than justified by their companies' actual earnings. A similar crisis was occurring in agriculture. During World War I, farmers had bought more machinery to boost production — a costly move that put them in debt. But, in the post-war economy, they ended up producing far more supply than consumers needed. Land and crop values plummeted.
Ultimately, the decrease in the money supply led to deflation. That, in turn, caused sky-high increases in real interest rates, which choked off any chances of companies investing or expanding. President Herbert Hoover's response to the economic crisis was tardy. A believer in minimal government intervention, he considered direct public relief character-weakening. He did eventually start spending and launched lending and public works projects.
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