The 1930’s – the great depression

In the 1930’s the great depression began. I think it all started because of over production. Americans who could afford new, expensive goods already had them. This led to factories over producing goods because they could not sell everything they were making. This obviously meant that companies did not make a profit. Soon they had to start cutting their costs which was bad for workers because their wages were cut and some were made unemployed. This only made matters worse because now the workers had less money to spend which meant they could not buy so many goods.

Companies now had to sack even more people to stay in business. This made matters even worse because people had even less money to spend. More and more workers started to be unemployed. So this was going down hill for the workers. Soon it reached rock bottom for the companies as well because some were going bankrupt and others went out of business. As you can see, one bad move led to the next. I think that trade tariffs, republican government policies, unequal spread of wealth, credit buying, over production, speculation on the stock market and the Wall Street crash were the main causes of the great depression.

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I will look at each cause in turn and work out which one is the trigger cause, I will find out if there was a cause which started off a chain of events. I will say if they were a long, medium or short term cause and how the causes could be linked. I’ll also work out if a cause didn’t happen, how it would have changed the chain of events and finally I will find out which cause was the most important. One way of making money during the 1920s was to buy stocks and shares. Prices of these stocks and shares constantly went up and so investors kept them for a short-term period and then sold them at a good profit.

As with consumer goods, such as motor cars and washing machines, it was possible to buy stocks and shares on credit. This was called buying on the margin and enabled speculators to sell off shares at a profit before paying what they owed. In this way it was possible to make a considerable amount of money without a great deal of investment. On 3rd September 1929 the stock market reached an all-time high. In the weeks that followed prices began to decline. Then on 24th October, over 12,894,650 shares were sold. Prices fell dramatically as sellers tried to find people willing their shares.

That evening, five of the country’s bankers, led by Charles E. Mitchell, chairman of the National City Bank, issued a statement saying that due to the heavy selling of shares, many were now under-priced. This statement failed to halt the reduction in demand for shares. On 29th October, over 16 million shares were sold. The market had lost 47 per cent of its value in twenty-six days. Although less than one per cent of the American people actually possessed stocks and shares, the Wall Street Crash was to have a tremendous impact on the whole population.

The fall in share prices made it difficult for entrepreneurs to raise the money needed to run their companies. Within a short time, 100,000 American companies were forced to close and consequently many workers became unemployed. As there was no national system of unemployment benefit, the purchasing power of the American people fell dramatically. This in turn led to even more unemployment. I think this cause was not the beginning of the great depression as it was only small cause and it did not last long but it would have definitely dampened the spirits of many people and probably contributed towards the great depression.

I think this cause was linked to share buying as because of the heavy share-selling, many were now under-priced therefore resulting in the crash. One reason why the boom did not continue and the Depression began was the fact that the economy was actually fairly weak to begin with. A lot of US citizens were never participating in the boom from the start. The US economy did look strong during most of the 1920’s with new gadgets and new hobbies – but not for the majority of people. There were some wealthy individuals but 60% of people wer living below the poverty line.

Some individuals were influenced by the advertising campaigns that went on, telling them to buy more and more new products. An easy solution for these people seemed to be to buy on credit. It seemed a good solution, but eventually they had to pay back instalments on what they had bought. Credit gave people the impression that they could afford more than they really could, but eventually they had to stop buying, as their wages weren’t high enough. Sooner or later the people would have to pay back what they owed and stop buying new goods.

Many people were also conned into buying products or land with their money. The gullibility of some Americans drove them into debt. One of the most famous financial tricksters was Charles Ponzi who fooled many Americans into paying money to supposedly make profit by doing nothing at all and into buying land that they didn’t know where it was, especially in Florida, which at that time was just swamp land! These people stopped participating in the boom when they realised they were being tricked and couldn’t really afford it. There were many groups of people who could not afford to take part in the consumer boom.

Coal miners were one such group. In the 19th century the coal mining industry had expanded greatly, creating many jobs, but with the introduction of oil and gas the production of coal was decreased along with the amount of jobs at the pits. Many American miners lived in poverty in the 1920’s. Similarly the cotton industry was in a state of change. The cotton industry was one industry that suffered particularly badly; this was partly due to the introduction of synthetic fibres such as nylon and rayon and partly due to the change in fashions.

In 1914, 19 yards of fabric were needed to create an average ladies outfit, but by 1928, the fashions had changed and the average amount decreased dramatically to just 7 yards. This obviously decreased the profits made by the textile industry. Some towns that relied heavily on the textile industry had already entered the depression whilst the boom was still going on in many parts of the USA. This decline in some industries was very damaging, as many people became unemployed. This is damaging because it means that these people could not contribute to the consumer boom and many could not afford necessities.

Unemployment was a major feature of the depression. Overproduction was also common in the agricultural industry, which proved to be a large problem. Wheat prices fell by 75% and the total income of farmers by about 70%. The farmers were another of the groups of people that were never rich enough to participate in the boom to start off with. New machinery and farming techniques helped the farmers, farming wheat, maize and corn on the prairies. During the boom in the USA, Americans discovered many different types of foods and began to eat more expensive foods such as meat; they ate less bread so less grain was needed.

Also, the grain used to be exported to Europe, but as they were still recovering slowly from the effects of WW1, they also needed less grain, as many people in European countries were living in poverty and were unemployed. Farmers had discovered new techniques that allowed them to be more productive, along with a series of good summers. This would have been a good thing if the demand had have been high, but this rise in production unfortunately coincided with the decrease in demand. Farmers were overproducing, and this was during the boom.

Farmers borrowed money, like many other Americans, from banks. They used this to buy new machinery, but many farmers were making too little to pay their debts. Over one million farmers were evicted from their farms during the 1920’s and many more lived in poverty. Farmers made up a fairly large part of the population and another group (although many were also farmers) who also made up a large part of the population, were the black Americans who made up between 10 and 15% of the population. Millions of black people lived in the southern states such as Alabama.

Nearly all blacks were too poor to buy consumer goods, as most were very poor farmers who were in debt. Most whites in America were very racist and did not think that equal rights for blacks should be allowed. The Ku Klux Klan was a very racist group who made sure that any blacks that tried to live a normal life, without living in poverty couldn’t make any economic progress. The KKK and the racist Jim Crow laws put many restrictions on black people’s freedom. Even after 1900 when black people moved into the north of the country they were still discriminated against and lived in ghetto areas such as Harlem in New York.

Black people did not have equality and there was much truth in the saying that Negroes were “the last to be hired and the first to be fired. ” Even when they were doing the same jobs as whites they were getting worse wages, so the blacks and the farmers, the textile workers and the miners (who made up a large proportion of the country) could not even afford the consumer goods in the boom. America’s foreign policies also helped to restrict the market for its goods by the immigration controls.

Prior to 1922 America had welcomed immigrants who had been young, strong and ambitious people. After the policy, introduced in 1922, the population growth was slowed therefore the market for goods restricted. If the majority of the USA had originally participated in the boom then it would probably have continued for longer because there would have been a wider target market, but there were millions of Americans who could never afford the goods in the first place. All of these groups being poorer than the rest of the country meant that there was a major misdistribution of income.

Some studies suggested that up to 60% of the population were living on or below the poverty line. There were some very wealthy individuals such as John D Rockafeller, but not in comparison to the amount of Americans altogether. Many Americans did have good jobs and did improve their standard of living in the 1920’s. In the late 1920’s it was estimated that the richest 1% of Americans owned approximately 40% of the country’s wealth. A major reason for the depression was that whilst company profits rose by 72% during the 1920’s wages for workers rose by just 7%.

This meant that only a very small minority of people could genuinely afford as many consumer goods as they wanted, but this minority could not possibly keep company profits rising. The workers made up a fairly large proportion of the country and because they (and the groups previously identified) could not afford the products themselves. With hindsight, the general public could not sustain the boom and the knock on effects would be that the companies’ profits would drop because of the greediness of some rich individuals who would not increase wages.

I think that this unequal distribution of wealth, along with the industrial problems mentioned, is a very significant reason why the depression happened. Maybe if the employers hadn’t have let the difference between the increase in company profit and the increase in wages be so vast, then the boom would have carried on, as the surplus goods, which many workers couldn’t afford to buy, would have been sold and profit would have continued to be made.

As well as many people not being able to afford goods in the first place, there was another factor which helped stop the market from expanding – the demand had been met. Cars, vacuum cleaners, radios, telephones, cookers, washing machines and typewriters were popular items bought by US citizens during the great boom, but by the late 1920’s, most Americans who could afford these new goods had purchased them and the need was satisfied. The poor could not afford them and the rich had already got them. The amount of products being produced exceeded the amount being sold in the USA.

These items could have then been exported and sold abroad but by this time, most foreign countries did not sell goods made in the USA because of the tariffs that had been introduced, so when the demand in the US was satisfied there was no growth of exports to compensate. One of these tariffs was the 1922 Fordney-McCumber Tariff, on imports. This seemed like a good idea because it prevented foreign competition, but backfired. Europe needed the profit made from exporting their goods to the USA in order to help them re-build from WW1. They didn’t sell America’s products but also couldn’t pay back their war loans.

The Smoot-Hawley Tariff was passed in 1930 for extra protection to American industries, but ended up spreading the effects of the depression all over the world. So, the excess products could not be sold in the USA and could not be sold abroad. As soon as the demand was satisfied, overproduction began. This led to industrial cutbacks and because there weren’t as many products being made, not as many people were needed to make them. Workers were laid off as a result of overproduction. The ex-workers could not afford new products which meant that more workers were laid off, who in turn bought less, and so the vicious circle continued.

There were industrial cutbacks in many fields, not just consumer goods. When the demand for cars went down, so did the demand for glass, oil, rubber, service stations and motels, therefore there was much unemployment. Unemployment was a major feature of the depression, so overproduction did, in ways, lead to the depression. So, there appears to be much evidence suggesting that the US economy wasn’t too healthy even before 1929. The Wall Street Crash occurred just before the depression began but that does not mean that it was the main cause of the depression, but what exactly did cause the economy to collapse?

Overall, I feel that the US economy was not as strong as it seemed and there were lots of problems weakening the economy at the time of the depression, the economic boom was somewhat false and it was obvious that it could not possibly continue forever. Many Americans thought that they could become rich because the country was doing so well and knew little about the state the country was in. They gullibly believed that they could make money by doing nothing and millions invested in shares in companies they knew nothing about.

Many people made profit, as the whole country appeared to be doing well, everybody was confident that the boom would continue. Therefore, when the first signs appeared that the sales of goods were beginning to slow down, better informed investors began to sell their shares. Suspicion spread and soon everybody began to sell. I think that a main cause of the Wall Street Crash was that people were ill informed and believed whatever they were told, but I don’t feel that this is a major cause of the depression, just the incident which triggered it.

I think that the Wall Street Crash is just one symptom of the many problems with the US economy and even if it hadn’t have occurred in 1929, the boom couldn’t have lasted much longer, as too many goods were being produced, workers were continually being laid off, therefore companies weren’t doing as well, and the unemployment rate was rising. This would have happened with or without the Wall Street Crash, so I don’t think that the depression was caused by the Wall Street Crash. Many of the other causes are inter-related, therefore it is hard to decide which is the most significant.

I think that the protectionist policies were a key cause as it was obvious that the boom could not last forever on the sale of consumer goods in the USA, as people would no longer have a desire to buy more and more of the same items. Exporting the goods would have been a sensible suggestion. If the protectionist tariffs had not have been introduced, then Europe could have been better off and so could the USA. Then overproduction would not have been such a problem, as the goods the Americans didn’t want could have been exported, the economy wouldn’t have got worse so quickly and the boom could have lasted.

Although the protectionist policies were problematic I think that the unequal distribution of wealth was a long term cause which played a very significant part in leading to the depression. If the Americans had have bought the goods to start with then there would have been no need to export them anyway. The boom was bound to come to an end some time, as a large proportion of the country (farmers, blacks, coal miners etc) could never afford the great new goods anyway. Only a small minority of the country could honestly afford the goods – the rest could not afford them or bought on credit and fooled themselves.

This meant that when the minority had bought what they wanted, the surplus goods could not be sold to the blacks, farmers, miners, textile workers and the 60% of the country living below the poverty line, before exports were even thought about. If a larger percentage could have afforded these goods then the boom could have continued for longer. Overall, I would say that the depression was a result of many linked reasons, leading from a reason which had been present for years – the fact that there were far too many poor people and far too few rich people to keep the economic boom going.

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