Causes Of The Great Depression

Between the late 1890’s, after the panic of 1893, and the late 1920’s, the American people led good lives in which most prospered. In the 1920’s the problems that led to the Great Depression were dispersed over a time of maldistribution of wealth, and what was called a bull market. A bull market is a stock market that is based on speculation. Speculation was a system of borrowing money to buy stocks and selling for a profit. Speculation only worked if the stock market was on the rise though. To this day people who have not been properly educated about the Great Depression believe that President Hoover was the cause. The idea that President Herbert Hoover caused the Depression could have arisen from the fact that he was the President at the time the Depression began. However, the people who do not believe that President Hoover was the cause deem the crash of the stock market in 1929 as the real culprit. The truth behind the stock market crash is that it was the event that caused the already unstable economy to go over the limit.

If the president and the stock market crash did not cause the Great Depression, then what did? According to research done on the Great Depression, the causes rest on of different factors, but can be put under two main categories. The responsibility for the Great Depression falls not only on the Stock Market Crash, but also on the maldistribution of wealth, an unstable economy and the wild stock market practices of the 1920’s.

The largest reason for the growing gap between the rich and the working-class people was the sudden increase in manufacturing during the 1920’s. The people of the working class were significantly increasing their output, but their wages only increased slightly. For example, the average worker out put from 1923-1929 increased about 32%, but the average income of the worker only increased about 8% (Gusmorino, Main Causes of the Great Depression). Therefore one may conclude that wages only increased one-fourth the amount production increased. Another amazing feat of the manufacturing increase was that prices for goods stayed the same, therefore the executives in the companies were keeping the mass amounts of profit that were now coming into the company. In fact, one can see that top executives in a certain company increased significantly because their salaries from 1923-1929 rose 64% (Gusmorino, Main Cau...

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...cantly, and investors began selling quickly. On the following Tuesday and Wednesday the prices began to stabilize. Then on Thursday, October 24, stock prices fell hard and even the biggest investors gave up on the market and sold their stocks. On the following Tuesday the stock market fell and the market was not able to get back up. This day is forever known as “Black Tuesday,” and the official start of the Great Depression.

The speculation and the resulting stock market crash acted as the trigger for the already unstable United States economy. Due to the maldistribution of wealth and the unstable economy of the 1920’s, the nation headed into a decade of trouble. In response to its economic difficulties, the United States set up even higher trade barriers with other nations, causing more trouble within the nation. Many of the working class lost their jobs, and since these people did not have savings, they were in big trouble. Unemployment grew to 13 million by 1932 as the country quickly spiraled into a catastrophe. The Great Depression had begun due to the maldistribution of wealth, a bad economy based on over confidence, and the irresponsible erratic of the “bull” stock market.