This speculation and the resulting stock market crashes acted as a trigger to the already unstable US economy. Due to the maldistribution of wealth, the economy of the 1920's was one very much dependent upon confidence. The market crashes undermined this confidence.
The rich stopped spending on luxury items, and slowed investments. The middle-class and poor stopped buying things with installment credit for fear of loosing their jobs, and not being able to pay the interest. As a result industrial production fell by more than 9% between the market crashes in October and December 1929. As a result jobs were lost, and soon people starting defaulting on their interest payment.
Radios and cars bought with installment credit had to be returned. All of the sudden warehouses were piling up with inventory. The thriving industries that had been connected with the automobile and radio industries started falling apart. Without a car people did not need fuel or tires; without a radio people had less need for electricity.
On the international scene, the rich had practically stopped lending money to foreign countries. With such tremendous profits to be made in the stock market nobody wanted to make low interest loans. To protect the nation's businesses the US imposed higher trade barriers (Hawley-Smoot Tariff of 1930). Foreigners stopped buying American products. More jobs were lost, more stores were closed, more banks went under, and more factories closed. Unemployment grew to five million in 1930, and up to thirteen million in 193249. The country spiraled quickly into catastrophe. The Great Depression had begun.
--Main Causes of the Great Depression, Main Causes of the Great DepressionThe era leading up to the crash is remembered for the celebration and practice of unbridled 'laissez faire' or worse --what is now called 'supply side economics'. Laissez-faire is simplistically defined as 'economic freedom' but in practice it amounts to 'license' for the upper classes. It is another set of rules for the rich.Supply-side economics is not a 'hands off' policy at all. It is, in fact, an active, deliberate distribution of wealth upward to an increasingly tiny elite. It is pseudo-economics touted to justify big tax breaks for the upper ten percent of the nation's income recipients and wealth-holders. Reagan's own budget director, David Stockman, called 'supply-side economics', a trojan horse. It is claimed that the wealth will 'trickle down' by stimulating investment. It never has and never will.
- Among the causes of the great depression, the great 'Stock Market Crash of 1929' tops the list.
Many believe erroneously that the stock market crash that occurred on Black Tuesday, October 29, 1929 is one and the same with the Great Depression. In fact, it was one of the major causes that led to the Great Depression. Two months after the original crash in October, stockholders had lost more than $40 billion dollars. Even though the stock market began to regain some of its losses, by the end of 1930, it just was not enough and America truly entered what is called the Great Depression.
- Bank Failures Throughout the 1930s over 9,000 banks failed. Bank deposits were uninsured and thus as banks failed people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own survival, stopped being as willing to create new loans. This exacerbated the situation leading to less and less expenditures.
- Reduction in Purchasing Across the Board With the stock market crash and the fears of further economic woes, individuals from all classes stopped purchasing items. This then led to a reduction in the number of items produced and thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying for items they had bought through installment plans and their items were repossessed. More and more inventory began to accumulate. The unemployment rate rose above 25% which meant, of course, even less spending to help alleviate the economic situation.
- American Economic Policy with Europe As businesses began failing, the government created the Hawley-Smoot Tariff in 1930 to help protect American companies. This charged a high tax for imports thereby leading to less trade between America and foreign countries along with some economic retaliation.
- Drought Conditions. While not a direct cause of the Great Depression, the drought that occurred in the Mississippi Valley in 1930 was of such proportions that many could not even pay their taxes or other debts and had to sell their farms for no profit to themselves. This was the topic of John Steinbeck's The Grapes of Wrath--Top Five Causes of the Great Depression
The 'L-curve' helps one imagine the degree to which wealth in the United States is inequitably distributed by policy and by design. The US population is represented 'stretched across a football field in order of income, from poorest, on the left, to richest. Imagine a stack of $100 bills 'representing each person's income.' For example: a stack one inch high represents a stack of one hundred dollars bills, i.e, $25,000. The red line on the graph represents the height of that stack compared to an American football field. "The red line in the first picture is the beginning of the US income distribution. On the scale of the football field the line slopes gradually from zero on the left to less than 2-inches high at the 50-yard line ($39,000), to about 4-inches high at the 95-yard line ($132,000). On this scale the entire graph is less than one pixel high, up to this point. It is not until you are well past the 99-yard line that you hit the $1 million mark: a stack of $100 bills 40-inches high. There were over 144,000 people who turned in IRS returns in 1997 with adjusted gross incomes of $1 million or more." [See: Houston Independent Media Center, Wealth Distribution in the USThe GOP has supported and effected outright transfers of wealth from all Americans to an increasingly tiny percentage of the US population. There is but one word for this: THEFT! [See: 'Greed is Good': The Death of an Economic Religion]Although the US economy produces tremendous wealth, it is always accompanied in GOP regimes by tremendous poverty. The US, for example, was most egalitarian in the years immediately following World War II. During GOP regimes, income inequality increased and is, in fact, measured with the GINI index. Higher Ginis indicate greater levels of income inequality. These indices have been significantly greater in every GOP regime since World War II.Certainly --there is enough wealth to go around. Instead, wealth flows upward ---not down, as the propagandists of 'supply side' i.e. 'trickle down theory' would have you believe. The problem is systemic --the result of identifiable, right wing policies. The primary culprits are GOP tax cuts by Mssrs Ronald Reagan and Bush; the effect of those cuts have been the deliberate transfer of wealth first to the upper quintile and, most recently, to an increasingly tiny elite of about one percent of the total population [See: Dr. Daniel Weinberger, US Census Bureau Briefings; Also see: The Quarterly Journal of Economics: Income Inequality in the United States at the following. It's a PDF and cites academic and official, original sources of data.The financial collapse of the US is tragic enough but complicated by the fact that Bush lied to you and stole your money in order to commit capital crimes in Iraq --crimes for which he could be executed when found guilty as charged. [see: US Codes, Title 18, Section 2441] There is a place in the dock for Bush. The GOP hopes to deflect attention from its traditional marching orders. The GOP raison d'etre is simply this: pass tax cuts and other measures designed to enrich only the ruling elites. IF you are NOT among the top one percent of the nation, the GOP has robbed you under the rubric of "cutting taxes". It's an easy issue to demagogue. If it were difficult, the GOP would never pull it off.Thanks to GOP policies which concentrate wealth at the top, there are increasingly FEWER 'small business' people. Small business can no longer compete with HUGE corporations favored by the GOP. The GOP has a vested interest in keeping an important truth from the American people. The truth is: wealth does not originate with rich people.Every economist --even right wing economists like Milton Friedman --subscribe to an established principle --the labor theory of value. The labor theory of value has been the basis for almost every major economic theory since Aristotle.The GOP believes the opposite. The GOP would have you believe that capital creates wealth. Think about it --if wealth had been created by the rich and, indeed, trickled down, the GOP would never feel 'compelled' to pursue its unfair tax policies. The government's own statistics prove beyond any reasonable doubt that GOP tax policies have enriched an increasingly tiny percentage of the total US population. It only makes sense to support 'trickle down' economics if, in fact, wealth does not trickle down. If wealth really trickled down, elites would not be motivated to support it. They are motivated to support only policies which they know will enrich them further. 'Trickle down' is the lie they use to sell it. They don't believe it themselves. Why should you? The nation's elites support 'trickle down' policies because they know wealth DOES NOT trickle down.Wealth is created by the act of doing work. Wealth or 'utility' is the product of acts of labor itself. Government has put an unfair 'tax' upon this 'labor' and has transferred the wealth that it represents to an elite who has done nothing to create it and does not deserve it. The lower and working classes pay more than their fair share of taxes. The government has it backward. The government taxes labor and gives capital a free ride with numerous dodges. This is the recipe for the impending economic collapse, a collapse that appears to be well underway and beyond anyone's power or ability to stop. But that has not stopped the government from playing it's well-rehearsed role as the shakedown arm of the nation's tiny and shrinking elite.If because of GOP transfers of unearned wealth to this increasingly tiny elite of about one percent of the population, labor becomes unproductive or impoverished and the productivity of the nation declines. It will ultimately collapse like the house of cards that it is. That is what we see happening as I write this. If the poor can no longer afford decent housing or food because elites have bid up prices on commodities, the house of cards will not stand. If you can no longer afford decent housing, health care or food, you have then, perhaps recently under Bush, fallen off the ladder. It's the GOP way. Bush's bailout proves Marx correct but, like everything else the GOP tries, they've mucked it up. It's not even 'good' Marxism. Not surprisingly, it benefits only the GOP base of elites and, because of that fact, it will have absolutely no effect whatsoever except that of hastening the impending collapse. Marx said that Capitalism would collapse of its own inconsistencies, 'internal tensions which will lead to its destruction.' The GOP has hastened that result. Bush drove a wedge between capital and labor. Karl Marx must be indulging schadenfreude from the grave. Some history may illustrate the point: the Wall Street crash of 1929 was followed by a severe world wide depression acutely felt in the US, Germany, France, and to a lesser degree --Great Britain and Sweden. Nevertheless, unemployment was high in Sweden when that nation returned a Labor government committed to a program of public investment to address the high unemployment problem. It worked. By 1935 real output in Sweden was 7 percent above its 1929 level. Unemployment was reduced and the finance minister was said to have been happy to suffer another budget deficit to stimulate the economy.Ronald Reagan's budget deficit did not have as happy a result. His tax cut of 1982 was quickly followed by the nation's worst recession since the Great Depression, a recession of some 18 months characterized by record levels of unemployment, home losses, the newly poor sleeping under bridges and overpasses. Reagan's best critics were found in his regime. Primarily, budget director David Stockman who blamed a "noisy faction of Republicans" for Reagan's infamous tax cut. Reagan might have achieved the prosperity that Keynes had predicted had his policies not been designed to reward only the filthy rich --his base!One wonders why Reagan didn't just cut out the middle man. A more equitable tax policy might have put more spendable income directly into the hands of consumers. Business would have benefited from additional sales to richer consumers. Spent money circulates and drives an economy. That consumers spend money seems to be a fact lost on the likes of Reagan, Bush, and the nation's rich and callous elites. Tax cut monies never stimulate growth and most certainly squirreled away --perhaps offshore--in ways that never create new jobs. It is jobs and the work done by way of jobs that is the wealth of a nation.Surely, there were knowledgeable advisers in Reagan's regime who knew better. The tax cut, therefore, was entirely political, a pay off to the rich for their support. Nothing has changed in the GOP. The Bush administration has made several such "payoffs" during his catastrophic and criminal regime.When the dollar collapses, you must know that its origins are found in the Nixon and Bush trips to China and Reagan's give away to his elite and greedy base. The policies have eaten away at our economic health like wood worms.