This essay has a total of 1594 words and 7 pages.
The Great Depression was the worst economic slump ever in U.S. history, and one which
spread to virtually all of the industrialized world. The depression began in late 1929 and
lasted for about a decade.
Many factors played a role in bringing about the depression; however, the main
cause for the Great Depression was the combination of the greatly unequal distribution of
wealth throughout the 1920's, and the extensive stockmarket speculation that took place
during the latter part that same decade. The lack of distribution of wealth in the 1920's
existed on many levels. Money was distributed in equally between the rich and the
middle-class, between industry and agriculture within the United States, and between the
U.S. and Europe. This imbalance of wealth created an unstable economy. The stock
market was kept artificially high, but eventually lead to large market crashes. These
market crashes, combined with the lack of distribution of wealth, caused the American
economy to capsize.
The "roaring twenties" was an era when our country prospered tremendously. The
nation's total realized income rose from $74.3 billion in 1923 to $89 billion in 1929.
However, the rewards of the "Coolidge Prosperity" of the 1920's were not shared evenly
among all Americans. In 1929 the top 0.1% of Americans controlled 34% of all savings,
while 80% of Americans had no savings at all.
Automotive industry mogul Henry Ford is one example of the unequal distribution
of wealth between the rich and the middle-class. Henry Ford reported a personal income
of $14 million in the same year that the average persons income was $750. By present day
standards Mr. Ford would be earning over $345 million a year!
This lack of distribution of income between the rich and the middle class grew
throughout the 1920's. A major reason for this large and growing gap between the rich
and the working-class people was the increased manufacturing output throughout the
1920ís. From 1923-1929 the average output per worker increased 32%. During that same
period of time average wages for manufacturing jobs increased only 8%. As production
costs fell quickly, wages rose slowly, and prices remained constant, the bulk benefit of the
increased productivity went into corporate profits.
The federal government also contributed to the growing gap between the rich and
middle-class. Calvin Coolidge's administration favored business. An example of legislation
to this purpose is the Revenue Act of 1926, which greatly reduced federal income and
inheritance taxes. Andrew Mellon was the main force behind these and other tax cuts
throughout the 1920's. Because of these tax cuts a man with a million-dollar annual
income had his federal taxes reduced from $600,000 to $200,000. Even the Supreme
Court played a role in expanding the gap between the socioeconomic classes. In the1923
case Adkins v. Children's Hospital, the Supreme Court ruled minimum-wage legislation
The large and growing difference of wealth between the well-to-do and the
middle-income citizens made the U.S. economy unstable. For an economy to function
properly, total demand must equal total supply. Essentially what happened in the 1920's
was that there was an oversupply of goods. It was not that the surplus products were not
wanted, but rather that those who needed the products could not afford more, while the
wealthy were satisfied by spending only a small portion of their income.
Three quarters of the U.S. population would spend essentially all of their yearly
incomes to purchase goods such as food, clothes, radios, and cars. These were the poor
and middle class. Families with incomes around, or usually less than, $2,500 a year. While
the wealthy too purchased consumer goods, a family earning $100,000 could not be
expected to eat 40 times more than a family that only earned $2,500 a year.
Through the imbalance the U.S. came to rely upon two things in order for the
economy to remain on an even level: credit sales, or investment from the rich. One
obvious solution to the problem of the vast majority of the population not having enough
money to satisfy all their needs was to let those who wanted goods buy products on credit.
The concept of buying now and paying later caught on quickly. By the end of the 1920's
60% of cars and 80% of radios were bought on installment credit. Between 1925 and
1929 the total amount of outstanding installment credit more than doubled. This strategy
created a non realistic demand for products which people could not usually afford. People
could no longer use their regular wages to purchase whatever items they didn't have yet,
because so much of the wages went to paying back past purchases.
The U.S. economy was also reliant upon luxury spending and investment from the
rich to stay afloat during the 1920's. The largest problem with this reliance was that luxury
spending and investment were based on the wealthy's confidence in the U.S. economy. If
conditions were to take a downturn (a
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