In economics, a depression is a sustained decline in economic activity. There has only been one depression since 1854; the worst economic downturn in the history of the industrialized world. This economic debacle, that became known as the Great Depression, sent Wall Street into a panic and destroyed millions of investors. The Great Depression is the period from 1929 to 1940 when the economy plummeted and unemployment skyrocketed, like never before. This decade has had lasting effects on how, especially older, Americans view themselves and their government.
The Great Depression had begun by the cause of not one problem alone, but by the joint effects of several problems on the economy. The stock market crash that began on Black Tuesday, October 29th, signaled the start of the depression, although it did not alone cause it. Over-confidence in the stock market, overproduction and the overspending of consumers in America led to the beginning of the most severe economic crisis in the history of the United States. The stock market was certainly beneficial to America. Many people built up large amounts of wealth from the stock market. The bidding up of stocks had soon became competitive.
People started to buy stocks based on speculation alone not sound financial principles such as proof of earnings. This was devastating on the stock market, which in return devastated the entire economy. Harry J. Carman and Harold C.
Syrett even went as far as to compare buying stocks to playing roulette or horse races in their book A History of the American People. “Security prices were forced up by competitive bidding rather than by any fundamental improvement in American business” (Document 4). People thought stocks were worth far more than they were, and because of that people were investing their money in companies that were not making significant improvements. Additionally, many people were buying stocks for little amounts of money and credited with many times more than they had bought. This was a huge problem because it contributed to over speculation of stocks. The New York Times’ newspapers were full of articles showing just how bad the stock market was crashing, and how it affected various companies across the country like General Electric and General Motors.
With headlines like “STOCK PRICES SLUMP 14,000,000,000 IN NATION-WIDE STAMPEDE TO UNLOAD; BANKERS TO SUPPORT MARKET TODAY” (Document 3), Americans were uncovering this unexpected shock in the stock market. Over speculation of stocks cost many people large amounts of money, or in some cases, everything they had. Another major cause of the Great Depression was overspending. People were spending more money than they were making and soon gathered debt that they could not re-pay. When people could not pay off their debts, companies lost money. Companies offered to sell products on installment, or partial payment.
In The Perils of Prosperity, Leuchtenburg says that “Three out of every four radios were purchased on the installment plan, 60 percent of all automobiles and furniture” (Document 5). Americans were doing a lot of spending even when the majority of the country was in poverty. According to data in Frederick Lewis Allen, The Big Change, 60% of Americans were at, or under, the poverty line of $2,000 annual income in 1929. Elmer Davis says in “If Hoover Fails” in the Harper Monthly, “… when people have bought all they can afford they stopped buying…” (Document 6). Davis claims that Americans themselves overthrew the business cycle. People did not have the money to buy luxuries, and when they could not pay off their debts companies took the hit. Another major contributor to the Great Depression was overproduction and how it affected workers. As manufacturing and agricultural output grew, the demand stayed the same because people did not have the money to buy all the surplus inventory.
As a result, production was cut back and workers were laid off. These dismissed workers then did not have the money to buy products from companies, creating a vicious cycle or downward spiral. Many people thought that the Great Depression was only the business cycle, but they were wrong. Two charts, from AmeriTrust Co., Cleveland, clearly show the difference. One chart shows the normal flow of the business cycle, with declines happening periodically over short times, and another showing the Great Depression. The difference between the two is that the Great Depression sustained longer than normal for the business cycle, affected a large amount of the country, and was reaching far lower points than normal. The political cartoon, The Stumbling Block, is a great visual representation of overproduction in the farm industry.
The farmer trips over a large sack titled “Over-Production” and spills a bunch of eggs that disperse with the prices of goods. This shows that farmers were growing too much for the economic demand to handle. Overproduction caused a vicious cycle that resulted in laid-off workers, which only made matters worse for the country, and prompted the Great Depression. Although some historians will differ on the leading causes of the Great Depression, most agree on a common high expectation in the stock market, overproduction and superficial prosperity in consumers as major motives in the severe economic collapse. These factors combined, led to a rise in unemployment, devastation in families, wealth, increase in homelessness, social problems and many other difficulties around the nation. The events that occurred before and during the Great Depression shaped a whole new generation of Americans.