The Great Depression

The Great Depression

Following the roaring twenties, there came a time of great physical and mental hardships for many citizens throughout the United States of America. After an era of massive growth and industrialization, the over production of goods became a great problem not seen before in the market place. More goods were being produced than consumed, and the market could not keep up, which was a contributing factor to the wide spread unemployment experienced during this time in America. A new need for skilled workers rather than general laborers or farm workers also changed the landscape of the world of work for the average person.  A series of bank scares led investors to withdraw their savings from banks in order to make sure their money was safe also compounded the severe instability for the entire country .My paper will discuss the ideas presented from the articles ”The causes and Cures of the Great Depression” and  “ Lessons From the 1030’s Great Depression”, comparing and contrasting the two largest contributing factors of the Great Depression, unemployment and the banking crisis. This series of economic and social events created the largest economic downturn our country has ever faced, The Great Depression.

A strong argument can be made to say that unemployment was the largest contributing factor leading to the “great depression”.  The foundation of the work force in America had historically been based on hiring immigrants and general laborers, who were needed in large quantity to create railroads, factories, and other large construction projects. This method was used to hire in mass and pay the laborers a low wage, and to simply replace them with someone of the same ability after they are no longer able to perform. This was called an efficiency wage, in which employers would have a fixed wage to make the business more profitable.

 The new need for skilled and educated workers came about when factories began develop more specialized industry products and more developed product lines and these factories were being built at a rapid pace. In the article “The Causes and Cures of Unemployment in the Great Depression”^[1] three types of unemployment are discussed. The first is called “cyclical”, and is also called deficient demand unemployment. This means there is not enough demand in the economy for it to operate at its highest level of employment.  Therefore, companies were forced to release some employees in order to maintain an acceptable profit margin.  This was considered a “no fault” firing of the worker.  The market just could not afford to expand.  

The second form of unemployment was called “frictional” unemployment. This was the time that a worker spent searching for a new employer or higher paying job.  Workers might search for a job for months and not find anything available. Lastly, “structural” unemployment the current social and economic environment which was related to the inconsistency of the number of available jobs to the number of available workers. This occurred when an industry failed or a business closed down. For example, a coal factory shutting down would mean the release of many jobless people back into an already weak economy without the prospect of any available jobs. The average worker did not have the money to spend time searching for new employment and there simply were no jobs to be found.

Discrimination in the work place was also a form of structural unemployment. African Americans were not given equal access to open jobs and often were given the most undesirable jobs available. Women were also excluded from equal pay and equal access in the workplace. As a white male dominated economy took an extreme nosedive, many capable workers were excluded from the scarce jobs available at the time due to the color of their skin or their sex.

 In the early 1900’s a consistent population of immigrants provided a large labor force to perform simple tasks. With new technology and machinery being used in factories, the need for laborers shrank and the need for skilled workers grew. The modern worker now had to be trained and taught how to operate the machines. Employers needed to differentiate between possible workers based on their productivity, and preferred to pay higher wages to fewer skilled workers, rather than many laborers. With many people on the hunt for jobs, businesses would agree to keep current employees if they would take a pay cut so they company did not have to bring in new employees. This kept a large portion of the population unemployed and allowed business owners to keep wages low.

There were a few companies that had a different approach to business and operational standards. In the article a term referred to as “Fordism” was a theory that a prosperous economy depended on a high level of consumption, which would also lead to higher incomes for workers. Unfortunately without the necessary higher wages, a lack of purchasing power would create a large imbalance in the economy.

Economists have discovered over time that cutting wages did not directly increase profits and that raising the wages and insuring a higher level of productivity for workers would bring about a more stable and profitable business. A higher wage attracted skilled workers who produced more goods in a shorter timeframe and therefore the company actually needed fewer employees to run the business successfully. The new method was to offer higher pay to attract the best and most productive workers and to eliminate those workers who were deemed slower or less productive. Employers began to look at wage histories to determine who was best suited for a job and subsequently rehiring those who had previously earned a high wage because they assumed the workers passed an efficiency test with the previous employers.  This meant that employees with high level skills and those with higher levels of education received favor in the work world. Those unskilled workers who had received lower wages struggled to find jobs because employers saw them as less productive and a higher risk to the company.

As the economic depression expanded, economists encouraged the government to increase public spending to help alleviate the burden on the overall economy. Instead the government actually cut on spending on public programs and raised tax rates in an effort to stabilize the shrinking economy. This caused a wave of money being pulled out of the economy and only proved to deepen the economic woes of the depression across the country.

The stock market crash of 1929 is also considered to be one of the largest contributing factors of the depression. Stocks in business that were either barely functioning or well on the way to closing down were being over. Many stocks were extremely over valued and sold at a price that did not reflect the true worth of the company. The cash stored in vaults was steadily being withdrawn by both the wealthy and the average American. There simply was no cash available anywhere to be found.  Average people would show up at the bank to withdraw from a savings account, only to be told to come back the next day.  The next day would come and a closed sign would be posted on the door of the bank.  Interesting to note that this created a generation who often stashed their cash in unusual places due to distrust of banks. Mattresses and freezers became more reliable than banks due to the effects of the Great Depression,