Essay on The Great Depression

This essay has a total of 2563 words and 12 pages.

The Great Depression



The 1920's was a period of general prosperity for many Americans but the decade ended with
the most serious depression in United States history.


When Herbert Hoover (31st president) took oath into office in March 1929, trade was
booming, industry was flourishing. Unemployment was low, wages were up, prices were
steady and corporations were making big profits and paying fat dividends.


Before the end of Hoover's first year in office, the stock market had collapsed. The
nation was beginning to slide into the worst depression in history. By the time Hoover
left office in 1933, many citizens had lost faith in their business leaders. Some had
begun to question the American economic system and even democracy itself.


The Roaring Twenties was an era dominated by Republican presidents: Warren Harding
(1920-1923), Calvin Coolidge (1923-1929) and Herbert Hoover (1929-1933). Under their
conservative economic philosophy of laissez-faire ("leave it alone"), markets were allowed
to operate without government interference. Taxes and regulation were slashed
dramatically, monopolies were allowed to form, and inequality of wealth and income reached
record levels. The country was on the conservative's preferred gold standard, and the
Federal Reserve was not allowed to significantly change the money supply.


During October, 1929, the stock market had some bad days. Then, suddenly, on October 24
[otherwise known as "Black Thursday"], prices began to fall, and buyers on margin had to
sell their stocks. The rush to sell made prices fall even faster.


In the 1920's, after World War I, danger signals were apparent that a great Depression was
coming. A major cause of the Depression was that the pay of workers did not increase at
all. Because of this, they couldn't afford manufactured goods. While the factories were
still manufacturing goods, Americans weren't able to afford them and the factories made no
money.


There were serious weaknesses in the economy that had hardly been noticed up to then. As
we have seen, while the output of American workers in creased steadily during the
twenties, their wages had not kept pace. At the same time, business profits and the
incomes of the wealthy had shot up. In 1929, the 36,000 wealthiest families in America
had a combine income equal to that of the nearly 12 million families with incomes of less
than $1500 per year. Yet the cost of necessities for a family was $2000 a year.


This meant that "prosperity" - the whole economy - depended on the spending and
reinvestment of their money by the wealthy and by business firms. When the stock market
panic frightened them, they stopped spending and investing. As for the remaining mass of
people, they could not pick up the slack. They had bought all they could on time, and
they had no spare cash. Most consumers could no longer afford to buy the new cars and
radios and refrigerators. Inventories piled up. Factories laid off more and more
workers.


Another major cause related to farmers. Farmers weren't doing to well because they were
producing more crops and farm products than could be sold at high prices. Therefore, they
made a very small profit. This insufficient profit wouldn't allow the farmers to purchase
new machinery and because of this they could not produce goods quick enough.


A new plan was created called the installment plan. This plan was established because
many Americans didn't have enough money to buy goods and services that were needed or
wanted. The installment plan stated that people could buy products on credit and make
monthly payments. The one major problem with this idea was that people soon found out
that they couldn't afford to make the monthly payments.


In 1929, the stock market crashed. Many Americans purchased stocks because they were
certain of the economy. People started selling their stocks at a fast pace; over sixteen
million stocks were sold! Numerous stock prices dropped to fraction of their value.
Banks lost money from the stock market and from Americans who couldn't pay back their
loans. Many factories lost money and went out of business because of this great tragedy.


By the 1930's, 25 % of all workers [thirteen million workers], lost their jobs. The
blacks and unskilled workers were always the first to be fire. Farmers had no money and
weren't capable of paying their mortgages. Americans traveled throughout the country
looking for a place to work to support themselves and their families.


Another weakness in the economy lay in our relations with the rest of the world. As a
result of the war, many nations owed the United States money. Yet our "tariff" walls kept
them from trading with us. So we had to make loans and investments abroad if the foreign
nations were to payt us. Once the flow of American money slowed down, these nations could
not pay their debts. And they could no longer afford to buy American goods. This was
another cause for factories to shut down, throwing still more Americans out of work.


The rise of "holding companies" had created special problems that did not quickly meet the
eye. During the 1920's more and more of these companies had been formed to hold the stock
of other companies. Business power was being concentrated in fewer hands. Also,
investment trusts were set up to seel their own stock and then invest the proceeds in the
stock market. Naturally, the investment trusts and holding companies depended on the
earnings of the companies they held. If anything happened to those, the holding companies
and investment trusts would collapse. Then confidence in business throughout the nation
would drop even more.


The worst flaw in the economy of the late 1920's was the stock market itself. It provided
a gambling arena where whims, unfounded fears, and unjustified hopes could trigger
disaster. The stock market provided a stage where the whole nation could watch the price
of Wall Street's stocks go boon and the bust! This was hard for citizens to realize why
the price and not the value of the nations product were "roller-coastering." Doubt and
fear spread across the nation.


The Great Crash became the Great Depression. The factory owners who could not sell their
products slowed down their factories and laid off workers. Jobless workers who had lost
their savings could not afford to buy anything. Still more factories closed down. The
collapse of the stock market had signaled the collapse of industry and helped to bring on
a severe economic depression not just in the United Sates, but in the developed nations
around the world.



Before the end of 1932 there were 12 million able-bodies Americans who were unemployed.
Many who had jobs were working only part-time. When they could not afford to pay their
rent, they had to squeeze in with friends and relatives. Thousands took to the roads,
drifting from place to place, desperately hoping that somehow in the next town they would
find a job. Respectable Americans who only a few months before had lived in decent houses
now had to seek shelter in shanty-towns of cartons and wood scraps on vacant lots. These
were a called "Hoovervilles." The young people with no money, no job, and no prospects
did not dare marry. Within three years, the number of marriages dropped by one-quarter.
College enrollments sank.


Millions went hungry. Children cried for the food their parents could not give them.
Two-thirds of the children in New York City suffered from malnutrition. Some parents went
wandering around through alleys, rooting in garbage pails for scraps to try to keep their
families alive.
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