Causes of The Great Depression
The 1920’s marked a period of economic prosperity and happiness among the people, but it was not until the end of this decade that the financial anguish had been noticed. The stock market crash of 1929 came as a shock to most Americans and especially the bankers, but looking at the causes of the Great Depression, it is pretty clear how America entered this period. Not only was there poor economic diversification but an uneven distribution of wealth and a poor international debt structure.
The first major cause of the Great Depression “was a lack of diversification in the American economy in the 1920s. Prosperity had depended excessively on a few basic industries, notably construction and automobiles, which in the late 1920s began to decline.” (Brinkley 604) America had become so reliant on these two major industries that it did not realize the effect they would have on the economy once they began to lack profit. “Newer industries were emerging to take up the slack / but none had yet developed enough strength to compensate for this decline.” (Brinkley 604) Being the beginning of the economic fall, American’s were not alarmed by this slight problem in the economy.
“A second important factor was the misdistribution of purchasing power and, as a result, a weakness in consumer demand. As industrial and agricultural production increased, the proportion of the profits going to potential consumers was too small to create an adequate market for the goods the economy was producing.” (Brinkley 604) This was a basic problem of supply and demand. Because the demand for certain products was so high, the industry would produce them in mass amounts ultimately leading the seller to gain no profit from the consumer.
American banks also started to observe financial problems with the loans they would provide for certain customers. This lead to the third major cause which was the “credit structure of the economy.” (Brinkley 604) In the 1920’s...