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Main Causes of the Great Depression

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The 1920s was a decade of economic prosperity for the country. In 1923, the aggregate income of the country totaled $74.3 billion. This number expanded by 17 percent to $89 billion by the end of 1929. The prosperity generated during this decade remained chiefly in the pockets of those whose incomes were in the top one-tenth of one percent of the population. “ According to a study done by the Brookings Institute, in 1929 the top 0.1 percent of Americans had a combined income equal to the bottom 42 percent” (McElvaine, 1984 p.

38). At the time of the market crash, four-fifths of the nation’ s citizens had no savings account but the highest earners, the 0.1 percent, had more than one-third of all savings (McElvaine, 1984 p. 38). To illustrate this discrepancy of wealth, automobile industrialist Henry Ford serves as a good example. Ford’ s reported annual income was in excess of $14 million (Baughman, 1996) when the average annual income for a worker was $750. In today’ s money, Ford’ s annual salary would exceed $350 million (Hoffman, 1992 p. 155). The economic divide between rich and poor grew during the 1920s mainly because the manufacturing output (production) rose by more than a third during this decade.

In other words, the labor of the workers made only the rich richer. (McElvaine, 1984 p. 39). The national economy became progressively more unstable as the disparity in earnings widened. “ For an economy to function properly, total demand must equal total supply. In an economy with a disparate distribution of income, it is not assured that demand will always equal supply” (McElvaine, p. 48).

The nation’ s economy was weakened by an over-supply of products. All economies are stimulated by consumer spending. The affluent bank the greatest proportion of their income but the lower earners must spend all of their income on basic necessities such as food, clothes, housing, and services. When a disproportionate part of the country’ s wealth is in the pockets of the wealthy, an insufficient number of dollars are being circulated throughout every stage of commerce.

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