Causes Of The Great Depression

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In 1929 the stock market crashed, triggering the worst depression ever in U.S. history, which lasted for about a decade. During the 1920s, the unequal distribution of wealth and the stock market speculation combined to create an unstable economy by the end of the decade. The unequal distribution of the wealth had several outlets. Money was distributed between industry and agriculture within the U.S.; in social classes, between the rich and middle class; and lastly in world markets, between America and Europe. Due to the imbalance of the wealth, the economy became very unstable. The stock market crashed because of the excessive speculation in the 1920’s, which made the stock market artificially high (Galbraith 175). The poor distribution of the wealth, excessive speculation, and the stock market crashes caused the U.S. economy to fail, signaling the start of the Great Depression.

The 1920’s were a time when the American people and the economy were thriving. This period of time was called the “Roaring Twenties”. Unemployment dropped as low as 3 percent, prices held steady, and the gross national product climbed from $70 billion in 1922 to nearly $100 billion in1929 (EV 525). However, the prosperity of the 1920’s was not shared evenly among the social classes in America. A study conducted by the Brookings Institution stated, “78 percent of all American families had incomes of less than $3,000. Forty percent had family incomes of less than $1,500. Only 2.3 percent of the population enjoyed incomes of over $10,000. Sixty thousand American families held savings which amounted to the total held by the bottom 25 million families.” (Goldston 26). The 40 percent of Americans at the lowest end of the economic scale received only 12 percent of the national income by 1929 (EV 549). This maldistribution of income between the rich and the middle class increased throughout the 1920’s. A major reason for this large and growing gap between the upper class and the working class Americans was that the manufacturing output increased throughout this period. As the production costs fell, wages went up slowly, and prices for goods remained at a constant. The majority of the benefits created by increased productivity fell into the hands of corporate owners. The federal government also helped to make the growing gap between the upper and middle classes. President Calvin ...

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...yers were available at any price (EV 549).

This speculation and the resulting stock market crash acted as a trigger to the already unstable U.S. economy. Due to the poor distribution of wealth, the economy of the 1920’s was one very much dependent upon confidence. President Hoover stated, “…the crisis has been isolated to the stock market itself.” (Docs Hoover). The market crash proved this confidence to be wrong. The rich stopped spending on luxury items, and the middle and lower classes stopped using credit in fear of losing their jobs and defaulting on their loans. As a result, industrial production fell by nine percent causing people to lose their jobs and default on loans (Galbraith 42). Industries started to fall apart around the automobile and radio industries. The rich refused to make loans to foreign countries for fear of going bankrupt. Foreigners stopped buying U.S. goods. Banks started to go under, stores closed up. President Hoover did not act in time to stop the country from going further into a depression (Docs Hoover). Unemployment had reached 13 million in 1932 (EV 549); the country went quickly downhill. The start of the Great Depression was setting in.
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