**Entry A (Ch 1-10): Causes of the Great Depression & the Stock Market Crash**
Causes of the Great Depression & the Stock Market Crash
The stock market in the United States crashed on October 29th, 1929, on what would become known as "Black Tuesday." In the months and years leading up to this tragic day, the prices of stock increased exponentially, as seen in the diagram above. Despite this apparent prosperity, analysts predicted that the stock market would inevitably crash at some point. However, nobody could possibly have imagined how severe the consequences of such a crash would be, in its creation of the infamous Great Depression.Although the Great Depression consisted of more than the stock market crash, this event caused the domino effect that would cripple the nation. The crash can be attributed to stock market speculation, where investors and average people guessed and gambled, purchasing stock in companies they knew little or nothing about. This caused the prices of stock for a given company to dramatically increase, even though it didn't reflect the company's true value. Additionally, most investors relied on the practice of buying on margin to finance their investments, where a person pays approximately 10% of the stock's price on a down payment, then pays for the rest using loans. The loans go unpaid until the person decides to sell their stock for a higher price, allowing them to repay the loan and make a significant profit for themselves. This practice worked incredibly well for a long duration of time. However, when stock values naturally decreased a little bit in early 1929, people began freaking out and selling their stock. As a result, stock prices fell even further and bank loans weren't able to be repaid, which caused banks to fail entirely.
The crash and its long term effects were allowed to happen because of several mistakes by the Federal Reserve Board. Leading up to 1929, it was extremely easy to take out a loan; consequently, speculation was just as easy to take part in. After the crash, the FRB recognized this problem, and decided to make it much more difficult to obtain a loan, employing a tight-money policy in 1930 & 1931. To do so, interest rates on loans were brought up (to discourage large loans) and the amount of currency in circulation was reduced. Instead of resolving the problem at hand, these actions by the FRB actually made the situation worse, because the lack of available money prevented any sort of recovery from taking place.
In 1930, the US government passed the Hawley-Smoot Tariff Act, which substantially raised tariffs on agricultural and manufactured goods that were imported to the US. The intention was to aid ailing American businesses by reducing their competition with international companies and their products. Theoredically, this tactic should have worked, because the added tariff would increase the prices of foreign goods, making American products the cheapest option. Yet, instead of fixing the problem, these efforts were nullified when other countries simply raised their import duties on American products, which reduced US exports to Europe.
The last major cause of the Great Depression was the maldistribution of wealth in American society. The gap between rich and poor was greatly expanded in the 1920s as a result of Republican political policy. Taxes on the wealthy were low and unions were discouraged (lower wages). The problem with having so much wealth concentrated in the wealthy classes is that the wealthy don't spend as much money as middle class citizens do towards stimulating the economy. Also, unemployed workers can't purchase and consume products that are being made, reducing demand, and causing layoffs and unemployment.
The Great Depression had a direct effect on the Joad family. When Tom returns to his family's home after he is released from prison on parole, his family has moved, in the process of moving west. Desperate to remain financially sound in the face of recession, many landowners kicked out their tenant farmers and replaced them with tractors, as is the case with the Joad family and their neighbors. Maintaining a tractor is much cheaper than paying dozens of tenants, and oftentimes was more efficient in terms of labor completion. Therefore, many tenant farmers and their families were forced out onto the streets to fend for themselves during the largest recession in the history of the United States.
Additional Sources: Murrin, John M. "The Great Depression and the New Deal, 1929-1939." Liberty, Equality, Power: A History of the American People. Australia: Wadsworth Cengage Learning, 2012. 690-91. Print.
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