What happened to the social class during the Great Depression?

[thaa kid]

I have a report due about the Stock Market Crash of 1929 leading to the Great Depression. Did all the social classes become equal because of the lack of money? I need decent sources that tell me this information for my paper.

[Julie S]

The main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920's, and the extensive stock market speculation that took place during the latter part that same decade. The maldistribution of wealth in the 1920's existed on many levels. Money was distributed disparately between the rich and the middle-class, between industry and agriculture within the United States, and between the U.S. and Europe. This imbalance of wealth created an unstable economy. The excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the mal-distribution of wealth, caused the American economy to capsize.

A major reason for this large and growing gap between the rich and the working-class people was the increased manufacturing output throughout this period. From 1923-1929 the average output per worker increased 32% in manufacturing. During that same period of time average wages for manufacturing jobs increased only 8%. Thus wages increased at a rate one fourth as fast as productivity increased. As production costs fell quickly, wages rose slowly, and prices remained constant, the bulk benefit of the increased productivity went into corporate profits. In fact, from 1923-1929 corporate profits rose 62% and dividends rose 65%.

he large and growing disparity of wealth between the well-to-do and the middle-income citizens made the U.S. economy unstable. For an economy to function properly, total demand must equal total supply. In an economy with such disparate distribution of income it is not assured that demand will always equal supply. Essentially what happened in the 1920's was that there was an oversupply of goods. It was not that the surplus products of industrialized society were not wanted, but rather that those whose needs were not satiated could not afford more, whereas the wealthy were satiated by spending only a small portion of their income.

Through such a period of imbalance, the U.S. came to rely upon two things in order for the economy to remain on an even keel: credit sales, and luxury spending and investment from the rich. he U.S. economy was also reliant upon luxury spending and investment from the rich to stay afloat during the 1920's. The significant problem with this reliance was that luxury spending and investment were based on the wealthy's confidence in the U.S. economy. If conditions were to take a downturn (as they did with the market crashed in fall and winter 1929), this spending and investment would slow to a halt.

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. To protect the nation's businesses the U.S. 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 1932. The country spiraled quickly into catastrophe.

As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation s economic machinery.

But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.

Workers who kept their jobs, even with reduced hours, and financiers whose money was invested in bonds prospered during the Depression. Their nominal incomes in dollars dropped, but prices dropped even more: the baskets of goods they could buy increased. Farmers, workers who lost their jobs, and entrepreneurs who had bet their money on continued prosperity were the big losers of the Depression. Production was a third less than normal and the distribution of income had shifted toward those who kept steady employment or who had invested their financial wealth conservatively. As a result, at the nadir the standard of living of losers taken all together was perhaps half of what it had been in 1929.

The restriction of immigration after 1920 also diminished the supply of unskilled, newly-arrived workers competing for low-level urban jobs. This made the distribution of income and wealth within America more equal.

While this is only a short synopsis, I think you get the gist of it.

Does it sound familiar? It's scary to think of, but.....It is scary to think about what would happen today if we were to go into another Great Depression. Right now as it stands the United States has a huge amount of debt caused by the war and George W. Bush's tax cuts for the richest ten percent of Americans. If we are not careful and continue down the same path we very well may end up living another Great Depression, and this time we don't have a President Roosevelt to save the country. Instead we have a President who seems to be helping the richest of Americans with tax cuts and laying the debt that he has created on working class citizens and unfortunately the next generation to come. Recently congress raised the minimum wage to help blue collar Americans, but with the huge tax cuts for the rich and the overwhelming cost of an ongoing war, it isn't much help, especially considering the amount of taxes the working class has to pay will increase with the minimum wage, leaving them not much better off than before the wage increases.

So if we are heading towards another Great Depression, what will be our New Deal?