The Great Depression

The Great Depression 5

The Great Depression was the worst economic downturn ever in U.S. History, and one

which extended to practically the entire industrialized world. The Depression began late in

1929 and lasted for about ten years. Many economists have their theories as to what

brought all of this about. It is generally accepted that 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 disparity in the distribution of wealth in the 1920's existed on

many levels. Money was distributed unequally 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, and eventually lead to

huge market crashes. These market crashes, combined with the maldistribution of wealth,

caused the American economy to capsize. Lives and livelihoods of the lower economic

groups were devastated. Politicians were no longer admired and the strain between the

races was high. Through it all, however, the people were able to find moments of relief in

entertainment of many kinds. They all pulled together to stretch what little they had and

found strength in themselves that they never realized was there.

The "roaring twenties" was an era when our country prospered tremendously. The

nation's total income rose from $74.3 billion in 1923 to $89 billion in 1929. The rewards

of the "Coolidge Prosperity" of the 1920's were not shared evenly among all Americans,

however. The top 0.1% of Americans had a combined income equal to the bottom 42%!

The same top 0.1% of Americans in 1929 controlled 34% of all savings, while 80% of

Americans had no savings at all. The disparity of income between the rich and the middle

class grew throughout the 1920's. 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. The large and growing dissimilarity of wealth between the well-to-do and the

middle-income citizens made the U.S. economy unstable. For an economy to function

properly, total demand must equal total supply. In an economy with such disparate

distribution of income, it is not granted that demand will always equal supply. In just

three years a whole decade of economic growth was wiped out. The first three waves of

bank failures began in the fall of 1930. While bank failures were common in the 1920s,

many more banks failed in the 1930s, and, unlike in the 1920s, there was a large decline in

the money supply. Made fearful by the huge number of banks that failed, surviving banks

cut back on their lending, and the public reduced their bank balances. Between 1929 and

1933, the nation's money supply declined by over 25 percent.

The federal government also contributed to the gap between the rich and

middle-class. The Roaring Twenties was an era dominated by Republican presidents:

Warren Harding (1920-1923), Calvin Coolidge (1923-1929) and Herbert Hoover

(1929-1933). Under their conservative economic philosophy of laissez-faire ("leave it

alone"), markets were allowed to operate without government interference. Taxes and

regulation were slashed dramatically, monopolies were allowed to form and inequality of

wealth and income reached record levels. The country was on the conservative's preferred

gold standard, and the Federal Reserve was not allowed to change the money supply. The

fact that the Great Depression began in 1929 on the Republicans' watch was and still is a

great embarrassment to conservative economists. Many try to lay the blame of the

worsening of the Depression on Hoover, for supposedly betraying the laissez-faire

philosophy. In his defense, however, almost all of Hoover's government action occurred

long after the worst of the Depression had hit. In fact, he was voted out of office for

doing "too little too late." That set the stage for the election of Franklin D. Roosevelt who

defeated Hoover.