The Great Depression in the US

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Great Depression

The economists and historians have not been able to reach an agreement regarding the causes of the depression . Most of them argue that the extensive stock market speculation was the major cause of depression However they differ in the magnitude of effect of stock-market crash on the great depression . Milton Friedman says in this regard "I don 't doubt for a moment that the collapse of the stock market in 1929 played a role in the initial recession (Parker , 49 ) Another economic historian Temin

(1976 ) only attribute a minor role to the speculation and stock market crash as the cause of great depression . Other economists speculate that stock market crash set an impetus for great depression and was the primary cause of this economic devastation . For example , the research studies by Romer (1990 ) and Flacco and Parker (1992 ) provides verified and verifiable evidence that speculation and stock market collapse were the primary source of consumers uncertainty in the economic activity that finally led to great depression

As usual the period of depression was preceded by a long period of speculation . The prosperity of the 1920s has benefited only a small group of people who owned great businesses . These people made huge profits in the form of dividends . No doubt in these big businesses hundred and thousands of stockholders had also shares but their investments were purely of marginal nature . The major share in these concerns was in the hands of comparatively small number of people . It is estimated that in 1929 almost 78 of the dividends from the great industries , railroads , oil companies and other combines went to 0 .3 population , headed by a handful of multi-millionaires . Gusmorino (1996 says in this regard

According to a study done by the Brookings Institute , in 1929 the top 0 .1 of Americans had a combined income equal to the bottom 42 2 . That same top 0 .1 of Americans in 1929 controlled 34 of all savings , while 80 of Americans had no savings at all . Automotive industry mogul Henry Ford provides a striking example of the unequal distribution of wealth between the rich and the middle-class . Henry Ford reported a personal income of 14 million in the same year that the average personal income was 750

As a result of speculation wave which swept the country during the years 1928-1929 , the stock market reached new heights . This boom was caused by a large number of people speculating in shares of stock `on margin . Under this system speculator deposited only as much money with their brokers as was sufficient to cover the probable range of fluctuations . Speculation in shares is resorted to because the price of the shares is rising and seems likely to rise . Tempted by the possibility of an easy fortune and wealth , in the late 1920s , people from different walks of life and professions freely indulged in stock speculation . For some time the prices of the shares showed a steady rise and reached an all...