Contributing to the Great Depression
The Great Crash of 1929 is the symbolic event that led to the Great Depression. There were many things that were wrong during this time, but there were four things that have had an enormous effect on society. These four things are:
Income, a large problem with the poor distribution of it occurred also. Most of society was only getting one-third of their annual income. This means that the economy was dependent on high levels of consumer spending and investment. If no one were to invest or spend a lot, the rich would only get richer and the poor would only get poorer.
Corporations and their terrible structure. The American enterprise during the twenties opened up to all the wrong people; people such as swindlers, imposters and frauds. Holding companies and investment trusts were the companies’ weaknesses. Controlling the railroads, utility, and the entertainment business were the holding companies. This was a constant danger because if the dividends got interrupted then there would be a default in the bonds, and this led to bankruptcy.
The structure of the banking system was weak. The way it worked was that one would put their money in the bank and the bank would use that money to loan to people who needed it and the bank would collect interest on this money. Instead of the banks holding into the money, they invested it into the stock market using poor judgment. The banks lost the money and when the people who put their money in the bank wanted it back, the bank didn’t have it to give back to them. This caused a huge problem with society.
Last but not least, America’s economic intelligence was poor. In November of 1929 president Hoover said that he was going to cut taxes. When he did, it only worked for the people that received a fairly high income; even then the tax cut was barley noticeable. The government also tried to create a balanced budget. From 1930 on, the budget was way off balance, and since it was off this meant that taxes would rise. In order to accomplish a drop in taxes, there needed to be a 25% decrease in governmental expenditures, which would be merely impossible (Galbraith Pg.182)
In all, the great crash did contribute to the events leading up to the great depression, especially these four problems that occurred prior to it.
Galbraith, John. The Great Crash 1929. Houghton Mifflin Company. Boson, New York.