What Caused the Great Depression and How Similar to These Causes Are Things Today

It had been a time of unprecedented prosperity in America. Everybody seemed to be capitalizing on the continued economic growth and it looked like the good times would never end. Gradually, however, some dark clouds appeared on the horizon. Oh, sure, it was easy enough to ignore the signs that something bad might be on its way since the nation's fundamental economic frame remained secure. Construction was booming and new inventions were quickly transforming from luxury items to essentials. Yes, there were problems in such sectors as textiles, steel and iron, but overall things looked pretty gosh darn swell. It wasn't until farmers began to feel the pinch that the experts really sat up and took notice. Over the course of just a few years, farming income halved and hundreds of thousands were forced to give up their farms, property and equipment.

In short order, construction began to take a toll. Over the course of three years, new construction starts fell from 11 million to 9 million units. With people no longer building houses or offices, there was little need for furniture to decorate those non-existence entities and so furniture inventories exploded. Companies responded to the drop in profits by cutting their workforce. Besides furniture, appliances for the household also suffered and those companies soon began cutting their labor force as well. The year was 1929, not 2008, but the similarities are striking.

What most people fail to understand is that the Roaring 20's was not a time of great wealth for all Americans. The upper classes enjoyed a prosperous lifestyle like never before and even the upper middle class were treated to a ride. The sad truth, however, is that the overwhelming majority of American citizens saw no equitable increase in their own wages or savings. It is estimated that as much as 70% of America lived through the 1920s on an income of less than $2500 a year. What that figure means in real terms is that 70% of Americans lived from paycheck to paycheck just as they always have, despite the image that money was running through the streets like cheap bathtub gin. Within that image of flashy cars and clothes lies the true core of truth about what brought on the Great Depression and should give anyone living today pause to consider.

In the 1920s, as now, a great many Americans were buying things on credit. The really frightening part, of course, is that there are far more Americans thriving on credit today than back then. In the 1920s it was far more difficult to earn a line of credit and credit cards were not even invented yet. The stock market crash of 1929 was an event of monumental complexity, but it remains relatively easy to boil it down. There was too much production, unequal distribution of income, and far much buying on credit.

A major factor that brought on the Great Depression was that the economy was slowing down, which resulted in decreased consumption. With so many people losing their jobs and most people unable to afford nice things without credit anyway, expansion was impossible. Nevertheless, manufacturers continued to produce goods just as before, resulting in surpluses like those experienced by the furniture and appliance industries. The real problem was that half of America's wealth was concentrated in about two-hundred companies. That inequality of the distribution of wealth extended to producers as well as consumers. The mathematics of surplus goods and fewer individuals capable of buying them seems obvious enough, but was completely ignored at the time. The Depression might even still have been avoided had there been an overseas market to take up the slack, but unpopular tariffs had been disastrous for American companies. Ultimately, even larger corporations had little choice but to cut workers and production. As business failed, banks followed behind them. As banks collapsed, savings were lost. It was a domino effect and there seemed no way to put an end to the inevitable.

Sound familiar? Replace banks with investment firms. Take a look at construction figures. Let's not even get started on how much the wealth of individuals is based on credit. Of course, here in the 21^st century we've got something they didn't have in 1929. We've got a never-ending war costing 15 billion dollars a month that the country can't pay for and so must go into debt. The potential cost in interest alone to pay for Bush's War has been estimated to be at least another trillion dollars added to the estimated trillion dollars it will cost to keep the war going. And that doesn't even take into account the potential cost to pay for the health care of tens of thousands of injured soldiers. But, hey, the government learned from the 1929 stock market crash and the Great Depression, right? Surely such another devastating economic collapse could happen again.