Great Depression
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The Great Depression
The Great Depression is the worst economic period in the U.S history. This didn’t just affect the United States of American, but the entire industrialized world. Historians may say that the Great Depression started in the late 1929, but it really started years earlier. There are many reasons way the Great Depression came about. One of the main causes was the great unequal distribution of wealth throughout the county. This wealth was spread through out the rich and middle class. This unequal spread was seen in the industry and agriculture section of the economy. This imbalance of money created an unstable economy. When the market crashed, American economy capsized along with the other industrialized nations.
In the twenties the nation income rose from $74.3 billion in 1923 to $89 billion in 1929. The 1920’s were known as the “roaring twenties” because of the tremendous prosperity of the wealth of the nation. The rewards of the twenties were not spread equally to all Americans. A good example is the automotive industry giant Henry Ford. Ford had a personal income of $14 million in the same year that the average American personal income was $750. Using present day numbers, where the average yearly income is around $18,500. Today, Ford would have earned $345 million. This lead to the spread of the rich and the middle class to even grew throughout the 1920’s. While the average American income raised at 9% from in the 1920’s, those with income in the top 1% increased 75%.
One of the main reasons for this gap between the wealth and the middle to lower class was the increase in manufacture. In the twenties the output of a worker increased 32%, while the average wage increase was only 8%. With the wage increase being at one fourth of the output increase lead to production cost to fell. In the mean time the price for the product remained level. This meant there was extra profit in each sale. This profit went to the corporation as profit.
The government didn’t help with the growing difference between the wealthy and the middle to lower class. During the Coolidge administration legislation was passed that reduced income and inheritance taxes. For an example, a person making a million-dollar annual had their taxes reduced from $600,000 to $200,000. The Supreme Court did help with their ruling that said the minimum-wage was unconstitutional.
The growing gap between the well-to-do and the middle and lower income citizens made the economy unstable. For the economy to run right, demand must equal supply. With the gap it was not assured that demand would always equal supply. Basically in the 1920’s there was a surplus of supplies. This supply was wanted but majority of Americans could not afford to purchase the items. In 1932 there was an article in the Current History about the problem with the distribution of wealth, it went:
“We still pray to be given each day our daily bread. Yet there is too much bread, too much wheat and corn, meat and oil and almost every other commodity required by man for his subsistence and material happiness. We are not able to purchase the abundance that modern methods of agriculture, mining, and manufacturing make available in such bountiful quantities.”
That article summed up what was happening with the modernization of every aspect of life. Farmers and industry was able to produce a lot more than what was able to be purchased.
75% of the Americans during the twenties could spend all their income buying things like food, clothes, radios, and cars. The average income for the bottom 75% was about $2,500 per year. This income was 45% of the entire national income. 55% of the national income went to the top 25% of income. This means a family that made $100,000 a year could not be expected to eat 40 times more than a family earning only $2,500. Nor could they be expected to buy 40 cars, radios, or houses.
This imbalance of income during this period led to two things to keep the economy on an even supply and demand curve. They were credit sales and luxury spending and investing for the wealthy. Buying by using credit was one solution the majority of American who didn’t have enough money to satisfy all their needs turn to. The process then is the same as today buy now and pay later. By the end of the 1920’s 65% of cars and 85% of radios were brought on credit. From 1925 to 1929 the total amount of credit more than doubled from $1.5 billion to about $3.1 billion. This strategy like today created artificial demand for product people could not afford. This led to people not being able to use their daily wage to purchase item they wanted, because they were spending it to pay back on items they purchased in the past.
The economy was heavily depended on the luxury spending and investment from the wealth. When the economy took a downturn