- Download PDF
1 Answer | Add Yours
The first issue was agricultural overproduction. During World War I, there had been enormous demand from overseas, as some of the best farmland in Europe had been rendered unfarmable by the fighting, and many farmers had joined the military leaving their farms fallow. When the war ended, the demand dropped. New technology had also been invented in an effort to meet the demand from Europe. These technologies included gasoline powered tractors, Tractor driven plows and other machines. Mechanization further increased production, but high supply and low demand lead to lower prices. In the past farmers has compensated by increasing production and making up for quality with quantity. Unfortunately, this time the glut was too big, and unlike the past, they had debts to pay off from the cost of mechanization. As a result many farm loans ended up under-water.
The second issue was inflation. Labor compensation did go up during the 1920s, but not as fast as consumer prices. As a result, the "consumers" didn't have any money to spend, and industrial overproduction began to occur. When this happens, industry has to start paying more or prices have to come down. Unfortunately, neither occurred, leading to a very warped economy where a few were getting rich at the expense of everyone else.
The third issue was unregulated securities. With big corporations having huge profits, everyone wanted to get a piece of the action, and stock markets boomed. Unfortunately this boom was largely a reflection of the rich getting richer, and the poor getting poorer. Although some middle-class gains were made, many were only able to afford securities with loaned money, money that they would pay back as profits were realized, this is the fatal flaw of career gambling. And of course where there's money trading freely, there are scammers. Ponzi schemes were rampant usually claiming those who were using the loans, who were unable to buy securities from reputable dealers.
In October 1929, this all came to a head. Farm loans foreclosing caused agricultural securities to fall. The number of these securities on loan caused the downturn to spread across the securities markets. As securities began to fall, income that had masked declining consumer spending vanished, and consumer spending fell. This caused even more securities to lose value, and soon a vicious cycle of cutbacks began. When the cycle finally bottomed out, 25% of Americans were Unemployed, up to 80% were underemployed, and business profits were almost non-existant.
We’ve answered 327,819 questions. We can answer yours, too.Ask a question