Causes of the Great Depression

¶ … Great Depression or What Reagan Doesn't Know about the 1920s" analyzes the economic and social conditions of the 1920s from a "Marxist underconsumptionist" stance and criticizes the foundations of a capitalist, free market economy. The prevailing view of the causes of the Great Depression centers on monetarism and thus oversimplifies the actual and complex causes of the Depression Monetarism focuses on the role of government fiscal controls such as the Federal Reserve and posits that the presence of key masterminds could have helped avert the crisis.

However, Stricker finds that monetarism fails to address the entire gamut of social and economic conditions that led to the Depression. Rather, a number of interrelated social, economic, and political issues, all of which hinge on a capitalist state, directly impacted the Great Depression. Moreover, the causes of the Great Depression cannot be viewed without considering the general economic conditions of the 1920s. The industrial infrastructure of the United States had already been established by the 1920s, and business was booming.

In particular, the automobile and construction industry boomed, as did production of electronic appliances. However, other sectors of the economy, especially agriculture, were weakening and in spite of the huge rise in productivity, consumption rates fell during the 1920s. Consumption rates fell naturally as the majority of citizens comprising the working class could not afford the very products they were being paid to produce.

Mega-manufacturers preferred to funnel excess profits back into the corporate sector, rather than to lower consumer prices or raise wages, both of which would have reduced profit margins. Furthermore, the federal government supported this business boom by merging politics with big business and blatantly supporting the wishes and desires of the corporate culture through legislation. Unemployment became a persistent problem and the power of unions to secure reasonable wages and job security for workers weakened in light of the government's stance.

While white collar jobs increased, large numbers of workers remained poor and unemployed, unable to reap the benefits from the rise in productivity that characterized the years prior to the Great Depression. Productivity rates were so high because of advances in technologies and in the labor force, especially through the use of the assembly line. As corporations funneled their profits back into big business, the rich grew richer at the expense of the vast majority of Americans.

As the upper classes saved and invested their money into the stock market, the American economy rested on a tenuous foundation of speculation and stock market gambling. The market was one of the only politically acceptable outlets for excess capital. However, in the 1920s, stock prices skyrocketed artificially, without any real advances or increases in output: the manufacturing sector wasn't about to produce more goods if they had no consumer base. This "unsound economy" fell apart with the stock market crash of 1929, as the illusion of perpetual profit fell apart.

Stricker points out that the Hoover administration failed.