The Great Depression of the 1930s was the greatest economic disaster the United States has ever experienced. The effects were lasting and far-reaching. Though there were multiple factors that contributed to this disaster, one underlies them all. The most contributing factor to the Great Depression was the rampant consumerism of the 1920s because this consumerism led to overproduction of goods, extensions of credit for people to purchase these goods, and speculative investments in stocks of the companies that produced those goods. It was a consumer bubble that was doomed to burst. The New Deal sought to address these problems by instituting legislation that would balance the costs of goods through regulation of production and costs.
During the 1920s, consumer goods such as the automobile were in great demand. In response to this great demand for consumer goods, manufacturers produced to meet the demand. But, when demand for these goods slowed due to market saturation, there was a surplus in inventory. With this surplus of inventory, manufacturers were forced to reduce production. This caused a cascading effect. With less consumption, there was less money flowing into the businesses. With less money, there was slowed production. With less production, there was less need for labor and companies were forced to fire their workers. These workers were also consumers who would then have been stripped of their income, thus their ability to purchase goods.
The increased demand for goods in the 1920s led businesses to extend credit to consumers for purchases. During the period preceding the Great Depression, most large consumer purchases such as automobiles and appliances were purchased on credit. Banks, also, during the 1920s had extended credit and loans to farmers and consumers with the assumption that the boom economy would continue, and the loans would be repaid with interest. Unfortunately, that was a gamble that would contribute to the failure of many banks. With farmers unable to sell their surplus of agricultural products, they were unable to repay their loans. Other consumers, now out of work, were unable to repay their debts. Banks called in debts and tightened credit. The response of the public to the banks reactions was that of fear and panic. People rushed to withdraw their money from the banks for fear the institutions would close. But, this response caused another major contributing factor to the Great Depression, that of the bank failures.
In response to the increased consumer demand for goods in the 1920s, many individuals participated in speculation in the stock market. During the boom time, companies were profiting, and stock holders were benefitting in return. This period of consumerism drove stocks to ever higher prices. Individuals were often investing in the stock market on margin, or credit essentially, in the hopes of significant enough return to pay back the loan. The combination of the overproduction of goods, decreasing prices because of the surplus, the overpriced stocks and speculation on margin would ultimately culminate in the stock market crash of October 1929, Black Tuesday.
The election of Franklin Delano Roosevelt would give the United States new hope for economic recovery. Roosevelt introduced significant legislation aimed at repairing the American economy. Many of these pieces of legislation would be aimed at repairing damage caused by the contributing factors to the Great Depression. Roosevelt spoke in his campaign address of how his goals were to address the issues of underconsumption and overproduction and adapt production to meet consumption. Two key efforts would be aimed directly at achieving these goals. The Agricultural Adjustment Administration aimed to raise the prices of agricultural goods while offering incentives to reduce production. The National Industrial Recovery Act aimed to regulate production, prices, and employment practices while providing incentives to companies for complying with the conditions of the Act.
Though there were multiple factors that contributed to the Great Depression, one theme would underly them all. This theme of consumerism would be the driving force behind the other contributing factors for this greatest of economic failures. Franklin Delano Roosevelts election brought many new policies aimed to repair the damage caused by these factors some of which are still present today. The New Deal brought relief and a period of economic recovery to the nation.
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