The Origins of the Great Depression

The Great Depression that began in October of 1929 and lasted 10 years, is said to
have many factors that play a role in the dramatic downfall of the economy. Although no
economist has ever accurately explained why this disaster ever came about, economists
have come up with a few events and actions that have come up with a few events and
actions that have greatly contributed to it. The decade previous to the crash was exciting,
care-free, and roaring. It is an ample opportunity to get rich quick and buy the
technological luxuries that may have been unaffordable , but according to the ads, “A
must-have of the future.” Due to all the demands for more of these gidgets and gizmos of
the future, business used their profits to expand to accommodate the consumer. During
the period from 1919 to 1929, manufacturing increased 64%.
Under the presidents Harding, Coolidge, and Hoover, Americans practiced the
policy of laissez-fair. This deceitful, yet widely praised policy was followed, and
allowed the economy to go on without the government interrupting or regulating it in any
way. The belief that came from this policy was that the businesses that consolidated
would receive larger profits from the consumer and share it in the worker’s wages, who
would in turn invest in the general wealth by investing in the stock market and also
buying the manufacturer’s goods. Even though it was true that the businesses were
gaining on profits, the worker’s wages were not being raised, and so they could not
contribute to the buying of goods. Yet surprisingly, the stock market soared without any
regulation.
In the 20’s banks began to quickly sprout up here and there around the country to
provide the Americans with the loans that they needed to, “Get Rich Quick,” in the stock
market. These Americans bought stocks on margin, making the stock market boom with
high numbers. The banks lent out the money in the expectation that the customer would
pay back the money with interest after getting rich.


The problem with all of these events that took place before the crash, were that, in
collaboration with each other, they created a facade that would prove extremely
detrimental to the economy and therefor the American population. The factories that
were expanding to accommodate the consumer were actually overexpanding and making
too many goods. These businesses used the profits, that were expected to go to the
worker’s wages, to expand. Thus, the worker did not receive the money to buy the goods
that they were manufacturing. To these same workers came the false hope of getting rich
quick in the stock market that was increasing at an alarming rate. The one problem is:
Where to get the money when the incoming salary was just enough to get by? The
solution: Get a loan from one of the many banks around the country. The worker took
this new-found money and bought stocks on margin. Hence, the market steadily without
real wealth to support it. When no one was investing in the goods that make the stock
market, the values began to drop and the order to sell grew. On Thursday, October 29,
1929, the stock market was flooded with orders to sell at an extraordinary rate. The
investors became poor quick and into debt for using money that did not exist. Banks
failed because they did not have the power to call back loans that the people had vainly
taken out. Business closed or cut back their workers, created vast numbers of
unemployed workers. The nation was thrown into a pit of debt that would take years to
repair, and the economy would never be the same.