Key Individuals and Periods in American History
This article will present a brief summary and discussion of the causes of the Great Depression based on Frank Stricker's paper, Causes of the Great Depression: or What Reagan doesn't know about the 1920s. Stricker presents an argument as to what he believes to be the root causes of this critical event in U.S. history as they relate to the decade preceding the stock market crash of 1929. This review is intended for undergraduate and graduate students of U.S. American History.
Stricker present's several essential points in his paper. The capitalist form of economy, by its nature, has an insatiable appetite for ever-increasing profits. During the 1920's profits were high, yet income distribution was unequal (95). The only real benefactors were primarily the rich and big business. Government policy makers wanted to keep the government out of business allowing big business to "dominate the decade" (95). Based on the conditions brought out in this paper, Stricker argues against the notion that any one person could have "soften" or stifled the depression of 1929 (96). However, he does present the possibility that more government intervention and stronger unions could have improved US economic conditions for not just the consumer and the laborer, but also for the balanced survival of this capitalist based economy and probably could have averted the depression (96).
During this period production levels exceeded the demand or ability of the average American to purchase goods. Stricker describes how productivity increased in manufacturing even though there had been little change in the number of manufacturing workers from the beginning through to the end of the 1920's (100). These increases in output and production efficiency lowered "employer costs" and made it possible to increase profit margins. Yet, instead of sharing the wealth and improving consumer/worker purchasing power by either raising wages and/or lowering product prices, big business chose to retain the "lion's share" of the profits for themselves.
There was considerable confidence in the stock market as discussed in this paper and how this confidence created the appearance of a very healthy market (105). Big business was sinking "big" money in loans to speculators because loan returns usually exceeded gains made by reinvesting in their own businesses. However, the confidence ended suddenly and sellers began significantly outnumbering buyers. As profits and savings declined from the resulting low stock prices, both speculators and big business cut back on investments and focused on paying off old debts, thus the market fell in 1929 (108).
Stricker also argues that the problem relates to the Government's fooling itself on the true unemployment rates and the health of the market. The published government estimates of unemployment were 2.2 to 5 percent. He proposes that the numbers were far higher, 7.5 to 12 percent (102). Additionally, the impact of low-income growth may not have been fully appreciated. Based on the low growth of income for the average laborer (2.8 percent over the period 1924-1929) this equated, as discussed in this paper, to a 4 percent decline in income over the same period (104). Little of the "benefits of rising productivity went to wages" - though corporate profits rose 35 percent during the decade (101).
Stricker's paper presents a convincing argument to the real roots of the Great Depression. He presents a handful of interrelated issues that worked in concert with each other to bring about the greatest economic collapse in this country's history. However, his main argument, as stated here, is that the primary culprit of this historic period was the inequitable distribution of profits and the capitalist system allowing over-production during the 1920's.
Stricker, Frank. Causes of the Great Depression, or What Reagan Doesn't Know About the 1920's. Economic Forum Volume XIV (Winter, 83-84), HUX 554, Course Outline 1998, 95-6, 100-1, 104-5, 108