Flaws Of The Economy In The 1920s

At the end of the 1920s, after World War I, the United States was an industrial giant boasting the largest economy in the world. Upon accepting the Republican Presidential nomination, Herbert Hoover famously stated “We in America today are nearer to the final triumph over poverty than ever before in the history of any land.” But within months after his inauguration, the stock market crashed. At the time, the American economy were already flawed by disparity in the distribution of wealth and a weak banking system, and within months, the nation’s economy started to spiral downward into the greatest depression it has ever seen.
During the 1920s, Americans wildly invested in the Wall Street stock market. Normal daily Americans became investors,

Mass domestic consumption during this time was good for the American businesses, but it was funded by bank credits and layaway buying without guarantees, which were highly unsustainable. In the 1920s, the vast majority of American banks were individual institutions that had to rely on their own resources. In 1930, after the market crashed, depositors nation-wide simultaneously tried to withdraw their money before the banks declare bankruptcy. The banks, unable to answer the overwhelming demand with the small fraction of cash they keep on hand, had to call in sold assets and loans they lent out, ultimately freezing credit, leading to deflation and halting the entire economy. A wave of bank failures that began in Louisville started to spread to Missouri, Illinois, Indiana, and Arkansas. Consumers’ demands for goods were dropping in the tight economy, together with employers unable to borrow money from banks to pay their workers lead to businesses laying off more and more workers to cut costs. The vastly unemployed working class of the country could not afford to buy goods that would have fueled businesses, so inventories continue to build up and prices dropped even further, killing more

Large corporations and businesses started to adapt Henry Ford’s model of assembly-line mass production, and they made great wealth off of this. New technology and devices became cheaper and more accessible to those in the middle class who can afford them, and America boasted a short-lived sense of prosperity and technological advances. However, not all Americans got to enjoy the Roaring 20’s glamour and wealth: “The wealthiest 1 percent of the population received 15 percent of the nation’s income – the same amount received by the poorest 42 percent” ). The unhealthy concentration of wealth in the hands of a few also meant that only a few could afford to pump money back into the economy when it needed during the depression; and a few is nowhere enough to keep the American economy afloat. While blue-collared industrial wages did increase some, while-collared corporate profits increased at twice that rate. The new prosperity, technology and glamour America boasted was only promised to the upper class and urban workers; “There was real prosperity in certain pockets of the economy in the 1920s,” as Historian David Kennedy put it. The agricultural sector were especially struggling the most during this decade prior to the market crash. During World War I, American farms were subsidized by the government to expand and mechanize in order to keep up with providing food for the army. After the War, low demands and over-production