The Great Depression In The United States

by Gillian Taylor (15)

The main cause of the Great Depression was unequal wealth distribution throughout the 1920s and the extensive stock market speculation during the latter part of the last decade.

This imbalance of wealth created an unstable economy. Excessive speculation kept the stock market artificially high, but eventually led to large market crashes. These crashes, along with maldistribution of wealth, caused the American economy to capsize.

In the "roaring 20's", America prospered tremendously. Total income rose from $74.3 billion in 1923 to $89 billion in 1929. However, this prosperity was mainly enjoyed by the very rich. In 1929, the top 0.1 percent of Americans had a combined income equal to the bottom 42 percent. The same top 0.1 percent of Americans in 1929 controlled 34 percent of all savings, while 80 percent of all Americans had no savings at all.

Although productivity had increased, wages had not. Tax advantages were plenty for the very rich. The large and growing disparity of wealth between the well-to-do and middle class made the U.S. economy unstable. For an economy to function properly, total demand must equal total supply. When income is so disparate, it is not assured that demand will equal supply. What happened was an oversupply of goods - too many could not afford them.

The poor and the middle class spent all their income for necessities. The top 25 percent of the population took in more than 55 percent of the national income. Credit sales abounded. When the day came to pay, people couldn't - and found themselves with no money to buy things they didn't have already.

America had also become over-dependent on two industries: automotive and radio. The problem was the economy had become reliant upon those industries to expand and grow and invest in order to prosper. When these two industries diminished, essentially all of American industry fell. Because it had been ignored, agriculture was already in ruin when American industry fell.

America's economy was also instable due to large-scale international wealth distribution problems. While America prospered in the 1920s, Europe was struggling to rebuild after the damage of war. The Great War had devastated European businesses. High trade barriers between the US and Europe further stymied the economy. The weakness of the international economy certainly contributed to the Great Depression.

Stock speculation was a huge factor of the Great Depression. The speculative boom in the stock market was based on confidence. Buying on margin -- in essence, buying stocks without the money to purchase them, was epidemic. Huge profits were made without any money actually spent. The market rose to absurdly high levels. The crash that resulted was practically inevitable.

The huge market crashes of 1929 were based on fear. On Black Thursday, 24 October, everything fell apart. Most major investors had lost confidence in the market. Black Tuesday saw an unprecedented 16.4 million shares changing hands - stocks fell so much that at many times, no buyers were available at any price.

Confidence was lost in the economy. The rich stopped buying luxury items, and slowed investments. The middle-class and poor stopped buying items on credit for fear of losing their jobs and not being able to pay the interest. Thus, industrial production fell, jobs were lost, and people began defaulting on their interest payment. High trade barriers caused foreigners to stop buying American products. Unemployment grew to five million in 1930. The country spiraled into catastrophe, and the Great Depression began.