Causes of the Great Depression
The great American industrial machine was capable of producing
Hi, I'm Frank Couvares for About.com, and I'm here to talk to you about the causes of The Great Depression.Neither historians nor economists agree completely about the causes of The Great Depression, but as I read it, the leading interpretation is something like this:The Great American industrial machine was capable of producing immense amounts of goods. And the American public was capable of consuming some of that production - but not all of it. And as the 1920s wore on, the gap between productivity in the American economy and the ability of consumers to consume what that economy produced grew larger and larger.A few enlightened businessmen, such as Owen Young of General Electric, and Edward Filene of the department store family, began arguing with their fellow businessmen that the traditional logic of business - that is, to produce as much as possible, for as little labor cost as possible, to keep wages down while maximizing profit - was really not the best logic. It was important to keep consumer demand up, therefore to pay wages more, so that workers could become bigger consumers.However, that logic didn't persuade enough businessmen, and as profits began to sink, as the capacity of consumers to absorb production declined, businessmen began putting their money into something we might recognize from recent history - bubbles, increasingly speculative stocks and schemes.In 1929, it all came crashing down. The underconsumption and overconsumption cycle, and the panic produced by the exploding of all those bubbles, led to the withdrawal of capital from the stock market, the closing of thousands of businesses, the laying off of tens of thousands of workers, ad the onset of the longest, worst depression in American history -and one whose effects are still with us to this day.Thanks for watching. To learn more, visit us on the web at About.com.