What Caused The Great Depression Essay
The strength of the United States economy is shown in the 1920s, nicknamed, the Roaring Twenties. Said strength is presented through Treasury Direct’s article stating “The Government's debt shrunk from $24 billion to around $17 billion” and History’s article, “The Roaring Twenties,” that states “The nation’s total wealth more than doubled between 1920 and 1929.” This double in wealth was accomplished due to many factors. John Green explains in “The Roaring 20's: Crash Course US History #32” that “Productivity rose dramatically largely because older industry's adopted Henry Ford's assembly line techniques and newer industries like aviation, chemicals, and electronics grew up to provide Americans with new products and new jobs.” With a drastic
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decrease in manufacturing time, goods could be mass produced. In “Lesson 9 1920’s,” Debby Meyer describes the Roaring Twenties as the second Industrial Revolution where “Consumer goods were the driving influence.” With more goods being produced, more were being purchased; therefore, the economy was driven in a positive direction.
THE GREAT PROBLEMS
This positive drive in the economy is one of the factors that greatly influenced the problems that would later cause the Great Depression. Americans began to invest a lot more in stocks and big businesses. As big businesses grew even bigger, smaller businesses shrank and simply went out of business. Moreover, businesses in cities were not the only ones to close; many farmers were losing their jobs. John Green clarifies by saying that
Farmers were even worse off [than other Americans,] many had prospered during World War One when the government subsidized farm prices in order to keep farms producing for the war effort, but when the subsidies ended, production didn't subside, largely due to mechanization and increased use of fertilizer. Farmers’ incomes dropped steadily and many saw banks foreclose upon their property. For the first time in American history the number of farms declined during the 1920s. For farmers the Great Depression began early.
Along with the government not aiding farmers financially, some farmers had to maintain their farms in extended periods of drought.
Martin Kelly explains in this article, “Top 5 Causes of The Great Depression” that “the drought that occurred in the Mississippi Valley in 1930 was of such proportions that many could not even pay their taxes or other debts and had to sell their farms for no profit to themselves.” During this time, the government did little to help small business owners or farmers. To add more factors leading into the problems that caused the depression, Calvin Coolidge, the president at the time, was not helping the economy either. Debby Meyer states in “Lesson 10 The Depressing 30’s,” that “[Coolidge] reduced government spending, cut taxes, and left the budget deficit a fraction of when he started.” While the president reduced government funds, “one percent of the nation's banks controlled fifty percent of the nation's financial resources and the wealthiest five percent of Americans share of national income exceeded that of the bottom sixty percent.” Furthermore, the end of the decade would mark the infamous event known Black Tuesday. This event was foreshadowed when stock prices declined multiple times prior. Beginning in September, then again in early October, then finally on October 18, the prices of stocks fell immensely and alarmed investors. The article “This Day in History: Oct 29: 1929 Stock market crashes” by History explains …show more content…
that
Panic set in, and on October 24—Black Thursday—a record 12,894,650 shares were traded. Investment companies and leading bankers attempted to stabilize the market by buying up great blocks of stock, producing a moderate rally on Friday. On Monday, however, the storm broke anew, and the market went into free fall.
This series of unfortunate events would then lead into Black Tuesday, October 29, 1929. Black Tuesday is summarized by saying that “Within a few hours, the gains of an entire year [were] lost.”
Considering all of the aforementioned factors, Debby Meyer came to the conclusion that there were five weaknesses in the economy. First, the economy had a bad distribution of income. Debby Meyer goes on to say that the “Wealthiest 1/10 of 1% earned as much as poorest 42% combined [and] the Top 5% received 1/3 of total income.” With such a small percent of the country owning a majority of the nation’s wealth, money is not regulated properly for middle class citizens. Jill Treanor states in her report, “Half of world's wealth now in hands of 1% of population,” that wealth growth has not allowed middle-class numbers to keep pace with population growth in the developing world. Furthermore, the distribution of wealth gains has shifted in favour of those at higher wealth levels. These two factors have combined to produce a decline in the share of middle-class wealth.
The middle class citizens lose their money while the wealthy spend theirs on luxuries and stocks, soon to follow.
Second, the economy had a poor corporate structure; “New holding companies were financed by credit.” Credit was a poor structure to base a company on because “Buying on credit is when one gives a down payment on a product to recieve it, then pays small amounts over a long period of time to pay it off instead of paying the full price up front,” according to the article “Easy Credit” on US History The Great Depression. When people took advantage of credit to buy luxurious items and could not pay it off they went into debt. Third, the economy had a bad banking structure. This weakness is known as the Monetarist Explanation by Jean Caldwell and Timothy G. O’Driscoll in their article “What caused the great depression?” The Monetarist Explanation states that “The Great Depression may have originated in a fall in total demand, but its length and severity resulted primarily from the unwillingness of the Federal Reserve System to prevent bank failures and to maintain a large enough money supply.” Caldwell and O’Driscoll go on to further explain that “The Federal Reserve System raised interest rates in early 1928, which discouraged business borrowing and spending and brought about the decline in production that began that summer. Interest rates were raised again in 1930 and 1931.” Fourth, the economy had a bad balance in internal trade. This being represented by that
of multiple actions: America “Exported more than it imported, [enacted h]igh tariffs, [and o]ther countries began defaulting on their loans.” Mike Kubic states in his article “The Roaring Twenties” that “the backlash of a tariff act enacted by Congress to keep out foreign goods… was a major blow to the economy… [as well as] it also triggered European retaliation against American exports.” Fifth, the economy was in a poor state of economic intelligence. The most obvious proof that supports the idea that the country had poor economic intelligence was the economic crash. The Foundation for Economic Education’s article “What Caused the Great Depression?” states that
By early 1929, the Federal Reserve was taking the punch away from the party. It choked off the money supply, raised interest rates, and for the next three years presided over a money supply that shrank by 30%. This deflation following the inflation wrenched the economy from tremendous boom to colossal bust.
Taking the economy’s already disastrous state and worsening it showed how unknowledgeable the government. Taking into consideration all of these events, the Great Depression was inevitable.
decrease in manufacturing time, goods could be mass produced. In “Lesson 9 1920’s,” Debby Meyer describes the Roaring Twenties as the second Industrial Revolution where “Consumer goods were the driving influence.” With more goods being produced, more were being purchased; therefore, the economy was driven in a positive direction.
THE GREAT PROBLEMS
This positive drive in the economy is one of the factors that greatly influenced the problems that would later cause the Great Depression. Americans began to invest a lot more in stocks and big businesses. As big businesses grew even bigger, smaller businesses shrank and simply went out of business. Moreover, businesses in cities were not the only ones to close; many farmers were losing their jobs. John Green clarifies by saying that
Farmers were even worse off [than other Americans,] many had prospered during World War One when the government subsidized farm prices in order to keep farms producing for the war effort, but when the subsidies ended, production didn't subside, largely due to mechanization and increased use of fertilizer. Farmers’ incomes dropped steadily and many saw banks foreclose upon their property. For the first time in American history the number of farms declined during the 1920s. For farmers the Great Depression began early.
Along with the government not aiding farmers financially, some farmers had to maintain their farms in extended periods of drought.
Martin Kelly explains in this article, “Top 5 Causes of The Great Depression” that “the drought that occurred in the Mississippi Valley in 1930 was of such proportions that many could not even pay their taxes or other debts and had to sell their farms for no profit to themselves.” During this time, the government did little to help small business owners or farmers. To add more factors leading into the problems that caused the depression, Calvin Coolidge, the president at the time, was not helping the economy either. Debby Meyer states in “Lesson 10 The Depressing 30’s,” that “[Coolidge] reduced government spending, cut taxes, and left the budget deficit a fraction of when he started.” While the president reduced government funds, “one percent of the nation's banks controlled fifty percent of the nation's financial resources and the wealthiest five percent of Americans share of national income exceeded that of the bottom sixty percent.” Furthermore, the end of the decade would mark the infamous event known Black Tuesday. This event was foreshadowed when stock prices declined multiple times prior. Beginning in September, then again in early October, then finally on October 18, the prices of stocks fell immensely and alarmed investors. The article “This Day in History: Oct 29: 1929 Stock market crashes” by History explains …show more content…
that
Panic set in, and on October 24—Black Thursday—a record 12,894,650 shares were traded. Investment companies and leading bankers attempted to stabilize the market by buying up great blocks of stock, producing a moderate rally on Friday. On Monday, however, the storm broke anew, and the market went into free fall.
This series of unfortunate events would then lead into Black Tuesday, October 29, 1929. Black Tuesday is summarized by saying that “Within a few hours, the gains of an entire year [were] lost.”
Considering all of the aforementioned factors, Debby Meyer came to the conclusion that there were five weaknesses in the economy. First, the economy had a bad distribution of income. Debby Meyer goes on to say that the “Wealthiest 1/10 of 1% earned as much as poorest 42% combined [and] the Top 5% received 1/3 of total income.” With such a small percent of the country owning a majority of the nation’s wealth, money is not regulated properly for middle class citizens. Jill Treanor states in her report, “Half of world's wealth now in hands of 1% of population,” that wealth growth has not allowed middle-class numbers to keep pace with population growth in the developing world. Furthermore, the distribution of wealth gains has shifted in favour of those at higher wealth levels. These two factors have combined to produce a decline in the share of middle-class wealth.
The middle class citizens lose their money while the wealthy spend theirs on luxuries and stocks, soon to follow.
Second, the economy had a poor corporate structure; “New holding companies were financed by credit.” Credit was a poor structure to base a company on because “Buying on credit is when one gives a down payment on a product to recieve it, then pays small amounts over a long period of time to pay it off instead of paying the full price up front,” according to the article “Easy Credit” on US History The Great Depression. When people took advantage of credit to buy luxurious items and could not pay it off they went into debt. Third, the economy had a bad banking structure. This weakness is known as the Monetarist Explanation by Jean Caldwell and Timothy G. O’Driscoll in their article “What caused the great depression?” The Monetarist Explanation states that “The Great Depression may have originated in a fall in total demand, but its length and severity resulted primarily from the unwillingness of the Federal Reserve System to prevent bank failures and to maintain a large enough money supply.” Caldwell and O’Driscoll go on to further explain that “The Federal Reserve System raised interest rates in early 1928, which discouraged business borrowing and spending and brought about the decline in production that began that summer. Interest rates were raised again in 1930 and 1931.” Fourth, the economy had a bad balance in internal trade. This being represented by that
of multiple actions: America “Exported more than it imported, [enacted h]igh tariffs, [and o]ther countries began defaulting on their loans.” Mike Kubic states in his article “The Roaring Twenties” that “the backlash of a tariff act enacted by Congress to keep out foreign goods… was a major blow to the economy… [as well as] it also triggered European retaliation against American exports.” Fifth, the economy was in a poor state of economic intelligence. The most obvious proof that supports the idea that the country had poor economic intelligence was the economic crash. The Foundation for Economic Education’s article “What Caused the Great Depression?” states that
By early 1929, the Federal Reserve was taking the punch away from the party. It choked off the money supply, raised interest rates, and for the next three years presided over a money supply that shrank by 30%. This deflation following the inflation wrenched the economy from tremendous boom to colossal bust.
Taking the economy’s already disastrous state and worsening it showed how unknowledgeable the government. Taking into consideration all of these events, the Great Depression was inevitable.