The Causes of the Great Depression

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Causes of the Great Depression

Meghan Driscoll
Period 7
10/29/12
Many economists believe that our economy works in ten year cycles where there are highs and lows. After the period of economic prosperity in the twenties, it was probable that the stock market would go through a period of self-correction. However, a multitude of events, both domestically and internationally, Washington policies and enactments, and natural disasters, led our country into the worst economic depression in its history. The depression was characterized by a deflation of assets, a drop in demand, high unemployment, extreme poverty, and a total lack of optimism.

After World War I, the United States saw a period of great economic boom, while Europe was still struggling. They had been devastated by the war while America was largely left untouched. During the roaring twenties, companies anticipated continued growth and earnings, and businesses were expanding as a result of record profits. Many sales were on installment plans, as the middle class added to their debt. Americans wanted two-car garages, motor cars, bathtubs, and other luxuries. It was easy to say that "in every town in America, the Babbitts were keeping up with the Joneses" (Nardo, 10).

During World War I, the government encouraged people to buy Liberty Bonds to come to the aid of the country. Doing this was both patriotic and financially rewarding. People also found that such paper investments were neither complicated nor risky; therefore, they felt more comfortable investing in Wall Street. More Americans invested in the stock market driving up the cost of shares. Not just the Wall Street businessman, but the laborer, secretary, and taxi driver emptied their savings and mortgaged their properties to make the fast money that the stock market was offering. There were stories of working people who had bought stock, sold it, and made more from it than in their entire life. Many saw this as their only opportunity to move themselves into better financial positions. Being thrifty and saving their money did little to advance themselves. Investment gains in the stock market were only on paper, though, and this frenzy of investment lead to an overvaluation of the corporate shares. Mass production was in high gear, and some investors were profiting from the stock market. But, this would soon come to an end. By Christmas of 1928, sales of luxury items decreased. Layoffs occurred, and factories were full of products that nobody was buying. Although the prosperity of the roaring twenties was publicized as being widespread, it was mostly in the hands of the top ten percent. The unemployment and inflation rates were low in the 1920's, but it was not necessarily a time of great wealth for all Americans. Statistical wage data indicates that the average worker rarely received any wage increases during the twenties. Union influences declined while profits were not passed down to workers. Many people wanted material goods, willing to live with high debt and minimal savings. They were not prepared for unemployment or a stock market self-correction. It sent masses of people into abject poverty. Citizens who knew little about the business world had put their faith in businessmen and "faith in the wise man of business and finance had been shattered" (Nardo, 33).

On October 24, 1929, known as Black Tuesday, the stock market crashed and a sell off of shares began. Two months later, $40 billion dollars would be lost from the market. A share of AT&T common stock was valued at $310 in 1929 before the crash. Its low that year plummeted to $193. Initially, in late 1929, Governor Roosevelt of New York referred to the crash as the "little flurry downtown," and said that confidence and optimism would turn the market around. Even though many already knew that the market was going through a period of downward fluctuation, it became apparent...
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