How was the unequal distribution of wealth connected to the Great Depression?

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thetall eNotes educator| Certified Educator

There were many developments that took place during the 1920’s which culminated in the Great Depression at the end of that decade. This period is known as the “Roaring Twenties” as a result of the industrial revolution and the discovery of electricity which transformed people’s way of life tremendously. In America in particular, industries manufactured electric home appliances which marketers triggered demand for by portraying them as necessities for each home. Henry Ford’s automobiles were also quite affordable thanks to mass production and a majority of people went out of their way to purchase them. The vast majority of Americans worked in the burgeoning industries at the time for poor wages. They resorted to installment buying to fit in the lifestyle demands of that era. The manufacturers on the other hand exploited the cheap labor to produce more goods at very low cost thereby enjoying very high profits which they kept to themselves. However, the workers’ wages did not increase and they sank into debt soon after because they lacked surplus money after catering to their basic needs to offset their installment purchases.
The discrepancy between the wealthy company owners and the poorly paid workers created an unstable economic environment. It is estimated that the top 0.1% of the America population in combination earned what the bottom 42% of the population earned. It is also estimated that in the same year Ford recorded an individual income of 14 million dollars, the average income of the population stood at approximately 7 thousand dollars. After a while, the product sales plummeted because the market could not afford luxury spending and the manufacturers had over produced. Investors lost confidence in the market and rushed to sell their shares leading to the stock market crash in 1929.

pohnpei397 eNotes educator| Certified Educator

According to mainstream historians, the connection between these is that unequal distribution of wealth did a great deal to cause the Depression.

The idea is that the rich had too much of the money and the rest did not have enough.  When the Depression started, this meant that the non-rich did not have enough money to spend to tide them over.  If the wealth had been distributed more equally, the average person would have been able to spend more and the demand for goods and services would not have dropped so severely.  If the US as a whole had had the same amount of wealth, but distributed more equally (historians argue) the Depression might not have happened.

gsenviro | Student

One of the causes of the Great Depression was the unequal distribution of wealth between the rich and the poor. It has been estimated that in 1929, the top 0.1% of Americans had the same wealth as the bottom 42%, highlighting the gap between the rich and the poor. While some people became rich due to increased manufacturing at lower costs due to new technologies, the wage rates didn't grow much, thereby increasing the gap between the rich and the poor. Wild speculations in the stock market and trading on margins also led to market failure. When the markets failed, people withdrew money from banks and stopped spending. The banks failed due to lack of funds and the market situation worsened because of lack of loans or funds. The rich had money, but did not spend it or loan it; while the poor did not have any savings to tide them over during the depression. This worsened the depression and pushed the country into deeper crisis. Had the wealth distribution been somewhat more uniform, the nation would have come out of depression earlier.