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The U.S. stock market crash of 1929 initiated the Great Depression in October of 1929 though this one event was caused by external sources and was not solely responsible for the most devastating economic collapse in American history. During the decade long depression, many lost their businesses, jobs, homes, savings and in most cases, hope. Both the positive and negative effects of government programs and policies instituted to alleviate the economic meltdown and the suffering of the people are still debated today but most did little to help while some only exacerbate the desperate situation.
Many dynamics factored into instigating the Great Depression but the central reasons were twofold. One was that the wealth of the nation was unevenly distributed. A middle class, as we would recognize it today, did not exist. The country was literally divided between the haves and the have nots, those with enormous wealth and power and those struggling to pay the bills each month. This wide gap of economic means during the Roaring Twenties served to create an unstable economy which combined with inflated speculations among the majority of stock market investors to send the country down the financial tubes. The excessive speculation in the late 1920s kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the mal-distribution of wealth, caused the American economy to capsize 1
The U.S. economy was crippled by an over-supply of products. An economy is fueled by consumer spending. While the poor spend all of their income on goods and services, the wealthy save the greatest proportion of theirs. When a disproportionate amount of the nations money is in the hands of the very rich, not enough is being circulated through all stages of commerce which negatively affects businesses and the workers they employ. When a greater proportion of the nations money is in the hands of the poor, more money is continually being pumped into the economy. The nations economic health was at the mercy of the wealthy spending lavishly but they began to slow both spending and investing as the economic outlook continued to decline during the late 1920s. Since there were relatively few persons of great wealth, a handful of industry leaders losing confidence in the health of the economy were all it took for an economic domino effect to take place. 2 With these dynamics in place, the market continued to slow until it crashed in October of 1929 and again that December.
In an effort to protect the interests of the nations businesses, the Herbert Hoover administration enacted protectionist measures such as the Hawley-Smoot Tariff of 1930 which imposed higher tariffs on goods entering the country. The White House and Congress were controlled by Conservative Republicans which bowed to business and industry interests in enacting this legislation. The Act effectively raised the amount of tariffs to unreasonable levels and was opposed by the nations leading economists. The result of this ill-conceived action became the final factor that caused the Great Depression. 3
The U.S. economy began making a comeback in 1938, well before the U.S. entered the conflict in late 1941. Additionally, this economic expansion ended prior to the end of the war thus debunking the argument. Today, incomes are again becoming disproportionate. This combined with poor economic strategies, deregulation and the exploding National Debt are threatening to plunge America into another Great Depression potentially much worse than the catastrophe of the 1930s.
Footnotes
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Hicks, John D. Republican Ascendancy, 1929-1933. New York: Harper & Row, 1960.
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McElvaine, Robert S. The Great Depression. p. 48 New York Times Books, 1984.
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Hicks p.229
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