Causes of the Great Depression

The Great Depression was a decade of poverty for many United States citizens. Starting in 1929, The Great Depression was a rough time not only for the U.S. but for many other countries. There are many causes for the Depression but the main cause was the combination of the greatly unequal distribution of wealth throughout the 1920's and the extensive stock market speculation(Gusmorino, 1). Other causes were the unsteadiness of the stock market, short signed economic policies, overdependence on mass production, consumer spending, advertising, welfare capitalism, and high tariff. The effect on the country of the imbalance in the economy threw the U.S. into an era of negativity.

How did the United States go from the "roaring twenties" to The Great Depression? It was all based on deflation and the crash of the economy. A good example of uneven distribution of wealth was Henry Ford's yearly income of $14 billion the same year that the average income was $750. Another contributor to the uneven distribution was the government. Calvin Coolidge favored businesses therefore favoring the wealthy who invested in these businesses.

For an economy to function properly, total demand must equal total supply. What happened in the 1920's was an oversupply of goods. This resulted in the middle-class needing more but not being able to afford more while the upper-class didn't want to buy more goods. Three quarters of the U.S. population spent almost all of their yearly incomes to purchase consumer goods such as food, clothes, radios, and cars. This group consisted of the poor and middle class citizens who only earned about $2,500 a year. The upper class, earning much more, were not expected to buy more food, cars, or clothing for their family which most likely consisted of the same amount of people as other American families.

One solution for allowing people to buy goods they needed was to let them buy those products on credit. By the end of the 1920's 60% of cars and 80% of radios were bought 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. This worked well for a while because it allowed for an artificial demand. Even though this put off the day of reckoning, the downfall was worse.

The Great Depression was the worst economic slump ever in U.S. history, and one that spread to virtually the