Main Causes Of The Great Depression Essay

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Main Causes of The Great DepressionThe Great Depression was the worst economic slack of all time in U.S. history, and one which spread to virtuallyall of theindustrialized universe. The depression began in late 1929 and lasted for about a decennary. Many factorsplayed a function in conveying about the depression ; nevertheless, the chief cause for the Great Depression was thecombination of the greatly unequal distribution of wealth throughout the 1920 & # 8217 ; s, and the extended stockmarket guess that took topographic point during the latter portion that same decennary. The maldistribution of wealthin the 1920 & # 8217 ; s existed on many degrees. Money was distributed disparately between the rich and themiddle-class, between industry and agribusiness within the United States, and between the U.S. and Europe. This instability of wealth created an unstable economic system. The inordinate guess in the late 1920 & # 8217 ; s keptthe stock market unnaturally high, but finally lead to big market clangs. These market clangs, combined with the maldistribution of wealth, caused the American economic system to turtle. The & # 8220 ; howling mid-twentiess & # 8221 ; was an epoch when our state prospered enormously. The state & # 8217 ; s entire realizedincome rose from $ 74.3 billion in 1923 to $ 89 billion in 1929 ( stop note 1 ) . However, the wagess of the & # 8221 ; Coolidge Prosperity & # 8221 ; of the 1920 & # 8217 ; s were non shared equally among all Americans. Harmonizing to a survey doneby the Brookings Institute, in 1929 the top 0.1 % of Americans had a combined income equal to the bottom42 % ( end note 2 ) . That same top 0.1 % of Americans in 1929 controlled 34 % of all nest eggs, while 80 % ofAmericans had no nest eggs at all ( end note 3 ) . Automotive industry mogul Henry Ford provides a strikingexample of the unequal distribution of wealth between the rich and the middle-class. Henry Ford reporteda personal income of $ 14 million ( end note 4 ) in the same twelvemonth that the mean personal income was $ 750 ( end note 5 ) . By present twenty-four hours criterions, where the mean annual income in the U.S. is about $ 18,500 ( end note 6 ) , Mr. Ford would be gaining over $ 345 million a yea! R! This maldistribution of income between the rich and the in-between category grew throughout the 1920 & # 8217 ; s. Whilethe disposable income per capita rose 9 % from 1920 to 1929, those with income within the top 1 % enjoyed astupendous 75 % addition in per capita disposable income ( end note 7 ) . A major ground for this big and turning spread between the rich and the propertyless people was theincreased fabrication end product throughout this period. From 1923-1929 the mean end product per workerincreased 32 % in fabrication ( end note 8 ) . During that same period of clip mean rewards formanufacturing occupations increased merely 8 % ( end note 9 ) . Thus rewards increased at a rate one 4th as fast asproductivity increased. As production costs fell rapidly, rewards rose easy, and monetary values remainedconstant, the majority benefit of the increased productiveness went into corporate net incomes. In fact, from1923-1929 corporate net incomes rose 62 % and dividends rose 65 % ( end note 10 ) . The federal authorities besides contributed to the turning spread between the rich and middle-class. CalvinCoolidge & # 8217 ; sadministration ( and the conservative-controlled authorities ) favored concern, and as a consequence the wealthywho invested in these concerns. An illustration of statute law to this intent is the Revenue Act of 1926, signed by President Coolidge on February 26, 1926, which reduced federal income and heritage taxesdramatically ( end note 11 ) . Andrew Mellon, Coolidge & # 8217 ; s Secretary of the Treasury, was the chief force behindthese and other revenue enhancement cuts throughout the 1920 & # 8217 ; s. In consequence, he was able to take down federal revenue enhancements such that aman with a million-dollar one-year income had his federal revenue enhancements reduced from $ 600,000 to $ 200,000 ( stop note12 ) . Even the Supreme Court played a function in spread outing the spread between the socioeconomic categories. In the1923 instance Adkins v. Children & # 8217 ; s Hospital, the Supreme Court ruled minimum-wage legislationunconstitutional ( end note 13 ) . The big and turning disparity of wealth between the well-to-do and the middle-income citizens made theU.S. economic system unstable. For an economic system to work decently, entire demand must be entire supply. In aneconomy with such disparate distribution of income it is non assured that demand will ever equalsupply. Basically what happened in the 1920 & # 8217 ; s was that there was an glut of goods. It was notthat the excess merchandises of industrialised society were non wanted, but instead that those whose needswere non satiated could non afford more, whereas the wealthy were satiated by passing merely a smallportion of their income. A 1932 article in Current History articulates the jobs of thismaldistribution of wealth: & # 8221 ; We still pray to be given each twenty-four hours our day-to-day staff of life. Yet there is excessively much staff of life, excessively much wheat andcorn, meat and oil and about every other trade good required by adult male for his subsistence and materialhappiness. We are non able to buy the copiousness that modern methods of agribusiness, mining andmanufacturing brand available in such big measures ( stop note 14 ) . & # 8221 ; Three quarters of the U.S. population would pass basically all of their annual incomes to purchaseconsumer goods such as nutrient, apparels, wirelesss, and autos. These were the hapless and in-between category: familieswith incomes around, or normally less than, $ 2,500 a twelvemonth. The bottom three quarters of the population hadan aggregative income of less than 45 % of the combined national income ; the top 25 % of the population tookin more than 55 % of the national income ( end note 15 ) . While the affluent excessively purchased consumer goods, afamily gaining $ 100,000 could non be expected to eat 40 times more than a household that merely earned $ 2,500a twelvemonth, or purchase 40 autos, 40 wirelesss, or 40 houses.

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Through such a period of instability, the U.S. came to trust upon two things in order for the econo

my toremain on an even keel: credit sales, and luxury spending and investment from the rich. One obvious solution to the problem of the vast majority of the population not having enough money tosatisfy all their needs was to let those who wanted goods buy products on credit. The concept of buyingnow and paying later caught on quickly. By the end of the 1920’s 60% of cars and 80% of radios werebought on installment credit(end note 16). Between 1925 and 1929 the total amount of outstandinginstallment credit more than doubled from $1.38 billion to around $3 billion(end note 17). Installmentcredit allowed one to “telescope the future into the present”, as the President’s Committee on SocialTrends noted(end note 18). This strategy created artificial demand for products which people could notordinarily afford. It put off the day of reckoning, but it made the downfall worse when it came. Bytelescoping the future into the present, when “the future” arrived, there was little to buy that hadn’talready been bought. In addition, people could not longer use their regular !wages to purchase whatever items they didn’t have yet, because so much of the wages went to paying backpast purchases. The U.S. economy was also reliant upon luxury spending and investment from the rich to stay afloat duringthe 1920’s. The significant problem with this reliance was that luxury spending and investment were basedon the wealthy’s confidence in the U.S. economy. If conditions were to take a downturn (as they did withthe market crashed in fall and winter 1929), this spending and investment would slow to a halt. Whilesavings and investment are important for an economy to stay balanced, at excessive levels they are notgood. Greater investment usually means greater productivity. However, since the rewards of the increasedproductivity were not being distributed equally, the problems of income distribution (and ofoverproduction) were only made worse. Lastly, the search for ever greater returns on investment lead towide-spread market speculation. Maldistribution of wealth within our nation was not limited to only socioeconomic classes, but to entireindustries. In 1929 a mere 200 corporations controlled approximately half of all corporate wealth(endnote 19). While the automotive industry was thriving in the 1920’s, some industries, agriculture inparticular, were declining steadily. In 1921, the same year that Ford Motor Company reported recordassets of more than $345 million, farm prices plummeted, and the price of food fell nearly 72% due to ahuge surplus(end note 20). While the average per capita income in 1929 was $750 a year for all Americans,the average annual income for someone working in agriculture was only $273(end note 21). The prosperityof the 1920’s was simply not shared among industries evenly. In fact, most of the industries that wereprospering in the 1920’s were in some way linked to the automotive industry or to the radio industry. The automotive industry was the driving force behind many other booming industries in the 1920’s. By1928, with over 21 million cars on the roads, there was roughly one car for every six Americans(end note22). The first industries to prosper were those that made materials for cars. The booming steel industrysold roughly 15% of its products to the automobile industry(end note 23). The nickel, lead, and othermetal industries capitalized similarly. The new closed cars of the 1920’s benefited the glass, leather,and textile industries greatly. And manufacturers of the rubber tires that these cars used grew evenfaster than the automobile industry itself, for each car would probably need more than one set of tiresover the course of its life. The fuel industry also profited and expanded. Companies such as EthylCorporation made millions with items such as new “knock-free” fuel additives for cars(end note 24). Inaddition, “tourist homes” (hotels and motels) opened up everywhere.! With such a wealthy upper-class many luxury hotels were needed. In 1924 alone, hotels such as theMayflower (Washington D.C.), the Parker House (Boston), The Palmer House (Chicago), and the Peabody(Memphis) opened their doors(end note 25). Lastly, and possibly most importantly, the constructionindustry benefited tremendously from the automobile. With the growing number of cars, there was a bigdemand for paved roads. During the 1920’s Americans spent more than a $1 billion each year on theconstruction and maintenance of highways, and at least another $400 million annually for city streets(endnote 26). But the automotive industry affected construction far more than that. The automobile had beencentral to the urbanization of the country in the 1920’s because so many other industries relied upon it. With urbanization came the need to build many more apartment buildings, factories, offices, and stores. From 1919 to 1928 the construction industry grew by around $5 billion dol!lars, nearly 50%(end note 27). Also prospering during the 1920’s were businesses dependent upon the radio business. Radio stations,electronic stores, and electricity companies all needed the radio to survive, and relied upon theconstant growth of the radio market to expand and grow themselves. By 1930, 40% of American families hadradios(end note 28). In 1926 major broadcasting companies started appearing, such as the NationalBroadcasting Company. The advertising industry was also becoming heavily reliant upon the radio both as aproduct to be advertised, and as a method of advertising. Several factors lead to the concentration of wealth and prosperity into the automotive and radioindustries. First, during World War I both the automobile and the radio were significantly improved upon. Both had existed before, but radio had been mostly experimental. Due to the demands of the war, by 1920automobiles