Causes For The Great Depression Essays - , Term Papers

Causes for the Great Depression The Great Depression was the worst economic slump ever in U.S. history, and one that spread to virtually the entire 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 stock market speculation that took place during the latter part that same decade. The misdistribution of wealth in the 1920's existed on many levels. Money was distributed disparately 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 excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the misdistribution 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. According to a study done by the Brookings Institute, in 1929 the top 0.1% of Americans had a combined income equal to the bottom 42%. That same top 0.1% of Americans in 1929 controlled 34% of all savings, while 80% of Americans had no savings at all. Automotive industry mogul Henry Ford provides a striking 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 personal income was $7505. By present day standards, where the average yearly income in the U.S. is around $18,5006, Mr. Ford would be earning over $345 million a year. This misdistribution of income between the rich and the middle class grew thro ughout the 1920's. While the disposable income per capita rose 9% from 1920 to 1929, those with income within the top 1% enjoyed a stupendous 75% increase in per capita disposable income. A major reason for this large and growing gap between the rich and the working-class people was the increased manufacturing output throughout this period. From 1923-1929 the average output per worker increased 32% in manufacturing. During that same period of time average wages for manufacturing jobs increased only 8%. Thus wages increased at a rate one fourth as fast as productivity increased. As production costs fell quickly, wages rose slowly, and prices remained constant, the bulk benefit of the increased productivity went into corporate profits. In fact, from 1923-1929 corporate profits rose 62% and dividends rose 65%. The federal government also contributed to the growing gap between the rich and middle-class. Calvin Coolidge's administration (and the conservative-controlled government) favored business, and as a result the wealthy who invested in these businesses. An example of legislation to this purpose is the Revenue Act of 1926, signed by President Coolidge on February 26, 1926, which reduced federal income and inheritance taxes dramatically. Andrew Mellon, Coolidge's Secretary of the Treasury, was the main force behind these and other tax cuts throughout the 1920's. In effect, he was able to lower federal taxes such that 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 the 1923 case Adkins v. Children's Hospital, the Supreme Court ruled minimum-wage legislation unconstitutional. 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. The end of the 1920's bought 60% of cars and 80% of radios on installment credit. Between 1925 and 1929 the total amount of outstanding installment credit more than doubled from $1.38 billion to around $3 billion. Installment credit allowed one to telescope the future into the present, as the President's Committee on Social Trends noted. This strategy created artificial