Economics

In 1929, A Yale University Economist Irving Fisher stated. " The nation is marching along a permanently high plateau of prosperity".(5) 5 days later the stock market crashed and the worst economic downturn in American history called the "Great Depression" began. The Depression started in 1929 and would last for a decade until we entered War World II. The Great Depression affected every part of economy and no job was safe. In 1929 unemployment was at 1.5 million and by 1933 unemployment reached over 13 million which meant 1 out of 4 were out of work (3). Some who were successful businessmen before the stock market crash and now selling pencils or apples on the street corners after the crash .Many business closed their doors, factories shut down and banks failed causing homelessness, poverty and general despair on many Americans. Huge numbers of Americans had their lives upset by the Depression. Tens of thousands of migrant farm workers traveled the nation looking for employment. Farming income fell some 50 percent and people went hungry because so much food was produced that production became unprofitable. Many Americans watched their homes and life savings be lost because of the stock market. Confidence in the market was lost and without that confidence investors pulled out and the market collapsed.(4)

America's unevenly distributed wealth played a role in the stock market crash and slowed the recovery. During the "Roaring Twenties" our country prospered tremendously, but our middle and lower class prospered little compared to the upper class. The upper class profits sky rocked and the distance between the classes grew out of control. In 1929 the top .1% had a combined income equal to the bottom 42 percent (2). Much of the money was in the hands of a few families who saved or invested rather than spent their money on American goods causing a greater supply than demand. Three quarters of the population maded just enough to purchase consumer goods. They relied heavy on credit to make purchases and had no savings to protect them (5). By 1929, some 200 corporations controlled over half of all American wealth (2). Most of the industries that were prospering and using their profits to improve manufacturing to the point by the market crash they were supplying more than the demand. Before the depression successful companies were connected to the automobile or radio industry. The economy became reliant upon these industries to expand and grow and invest. The problem being if one of these industries like automobile declines so does other industries such rubber, metal, and etc.

Extensive stock market speculation that took place during the latter part that same decade made the economy unstable. In 1925 the market value was $27 billion and by 1929 the market value had grew to $87 billion (5). New investors entering the market, many who viewed it as a get rich quick scheme, and lenders willing to loan them money helped inflate stock prices. Before the Great Depression, there were no effective legal guidelines on buying and selling stock. Free from such limitations, corporations began printing up more and more common stock to sell to make a profit . Many investors in the stock market practiced "buying on margin," that is, buying stock on credit (1). Confident that a given stock's value would rise, an investor put a down payment on the stock, expecting in a few months to pay off the balance of their initial investment while reaping a hefty profit. This investment strategy turned the stock market into a speculative pyramid game, in which most of the money invested in the market didn't actually exist. By 1928 the economy began to slow down, there were production surpluses and a downturn in business activity. The Federal reserve board took notice and hiked interest rates in an attempt to slow investors. They wanted to slow the investments to a pace more appropriate to the economic decline. However it did not work and the stage was set for a major market correction. In 1929 the panic began when at the first sign of correction, traders panicked and began selling their stock, fueling the market crash .An estimated $30 billion in stock values "disappeared" by mid-November and By 1933 the value of stock on the New York Stock Exchange was less than a fifth of what it had been at its peak in 1929 (4).