Causes Of The Great Depression Essay

3306 words - 13 pages

The Great Depression was the worst economic slump ever in U.S.history, and one which spread to virtually all of the industrializedworld. The depression began in late 1929 and lasted for about adecade. Many factors played a role in bringing about the depression;however, the main cause for the Great Depression was the combinationof the greatly unequal distribution of wealth throughout the 1920's,and the extensive stock market speculation that took place during thelatter part that same decade. The maldistribution of wealth in the1920's existed on many levels. Money was distributed disparatelybetween the rich and the middle-class, between industry andagriculture within the United States, and between the U.S. and Europe.This imbalance of wealth created an unstable economy. The excessivespeculation in the late 1920's kept the stock market artificiallyhigh, but eventually lead to large market crashes. These marketcrashes, combined with the maldistribution of wealth, caused theAmerican economy to capsize.The "roaring twenties" was an era when our country prosperedtremendously. The nation's total realized income rose from $74.3billion in 1923 to $89 billion in 1929(end note 1). However, therewards of the "Coolidge Prosperity" of the 1920's were not sharedevenly among all Americans. According to a study done by the BrookingsInstitute, in 1929 the top 0.1% of Americans had a combined incomeequal to the bottom 42%(end note 2). That same top 0.1% of Americansin 1929 controlled 34% of all savings, while 80% of Americans had nosavings at all(end note 3). Automotive industry mogul Henry Fordprovides a striking example of the unequal distribution of wealthbetween the rich and the middle-class. Henry Ford reported a personalincome of $14 million(end note 4) in the same year that the averagepersonal income was $750(end note 5). By present day standards, wherethe average yearly income in the U.S. is around $18,500(end note 6),Mr. Ford would be earning over $345 million a year! Thismaldistribution of income between the rich and the middle class grewthroughout the 1920's. While the disposable income per capita rose 9%from 1920 to 1929, those with income within the top 1% enjoyed astupendous 75% increase in per capita disposable income(end note 7).A major reason for this large and growing gap between the richand the working-class people was the increased manufacturing outputthroughout this period. From 1923-1929 the average output per workerincreased 32% in manufacturing(end note 8). During that same period oftime average wages for manufacturing jobs increased only 8%(end note9). Thus wages increased at a rate one fourth as fast as productivityincreased. As production costs fell quickly, wages rose slowly, andprices remained constant, the bulk benefit of the increasedproductivity went into corporate profits. In fact, from 1923-1929corporate profits rose 62% and dividends rose 65%(end note 10).The federal government also contributed to the growing gapbetween the rich...

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