Income Inequality and the Causes of the Great Depression
This paper argues that income inequality was the root cause of the Great Depression, tracing how the accumulation of wealth among a small elite during the 1920s drained purchasing power from ordinary Americans. Drawing on the economic theories of Marriner Eccles, Keynesian savings-investment dynamics, and historical data on wages, dividends, and wealth distribution, the paper demonstrates that overproduction and under-consumption were direct consequences of skewed income distribution. It also connects these historical patterns to more recent economic crises, suggesting that the structural conditions preceding the Great Depression have troubling parallels in the modern era.
- Introduction: The Great Depression as National Trauma: Framing the Depression and thesis on inequality
- Origins of the Crisis: The Economic Boom of the 1920s: How WWI and business expansion set crisis conditions
- Credit Expansion, Savings, and the Money Supply: Credit bubble growth and Keynesian savings dynamics
- Income Distribution and the Collapse of Consumption: Statistical evidence of wealth concentration and under-consumption
- Eccles, Mass Production, and the Failure of Private Credit: Eccles's diagnosis of credit overextension and demand collapse
- Wealth Hoarding and the Downward Spiral: Hoarding by the wealthy worsened economic contraction
- Parallels to the Modern Economic Crisis: Comparing Depression-era conditions to the modern economy
✍️ How to write this paper — guide, tools & examples ▾
What makes this paper effective
- It builds a clear causal chain, connecting wealth concentration to reduced consumption, credit overextension, and ultimately economic collapse, rather than treating the Great Depression as a series of isolated events.
- It integrates primary source testimony — Marriner Eccles's memoirs — alongside economic theory and statistical data, giving the argument both empirical and humanistic weight.
- The conclusion draws a contemporary parallel that frames the historical argument as policy-relevant, giving the paper a sense of broader significance beyond the 1929 event itself.
Key academic technique demonstrated
The paper uses a thesis-driven analytical structure in which a single explanatory claim — that income inequality underlies all other causes of the Great Depression — is tested against multiple competing explanations (overproduction, banking panics, credit collapse) and shown to subsume them. This technique of subordinating rival theories under a unified thesis is characteristic of strong argumentative historical writing.
Structure breakdown
The paper opens with a vivid cultural framing of the Great Depression before narrowing to its thesis. Body paragraphs move chronologically through the 1920s boom, credit expansion, and income distribution data, then pivot to Eccles's primary account as a climactic piece of evidence. A final section applies the historical argument to the contemporary moment, functioning as both conclusion and call to reflection. The structure is linear and cumulative, with each section adding a new layer of evidence for the central claim.
Introduction: The Great Depression as National Trauma
In a recent interview, presidential political advisor David Axelrod stated that President Obama "inherited the worst recession since the Great Depression…." (Jackson, 2012). In terms of American history, the Great Depression looms over the United States like some sort of mythological ogre — albeit an economic one — and this ogre frightens politicians and the public alike. Everyone has heard stories of brokers and bankers jumping out of windows to their deaths, of families forced to leave their homes to become migrant workers, and of people hiding money in their mattresses because they did not trust the banks. The Great Depression was a national trauma that has had long-lasting effects on the nation.
Economists, historians, and others have debated the causes of the Great Depression ever since it occurred, producing a number of theories — some extremely complicated and intricate — to explain the worst economic collapse in the history of the world. But the theory from which all others seem to sprout is a rather simple one: economic inequality. Whether one blames micro- and macroeconomic forces such as aggregate demand, instability of wages, or banking panics, all of these can trace their roots back to the fact that too much wealth was accumulated in the hands of too few people, who did not use it for the benefit of the national economy but for their own selfish gains.
The Great Depression is said to have begun with the stock market's "Great Crash" on October 29, 1929, but events had been heading toward such a collapse for some time. After almost seven years of rising stock prices, in September 1929 they began to slip downward. While most believed it was just an economic hiccup, by October the hiccup had become a sustained downward slide. October 19th saw a "sudden wave of selling…," and by Thursday, October 24th, a wave of panic selling erupted (Downing, 2001, p. 4). There was an attempt to stabilize the situation over the weekend, but by Tuesday — known as "Black Tuesday" — the market had crashed. In the three years immediately following the crash, American "real GDP fell by about 25%, and nominal GDP by about 50%…," with the unemployment rate peaking at just about 25% (Hall, 1998, p. 4). There was some recuperation of the economy in the years from 1934 to 1937, but by 1937 "output fell again, and the Great Depression was considerably prolonged in the United States" (Hall, 1998, p. 4). Ultimately, the Great Depression — which actually consisted of two separate recessions — kept economic output in the United States below average for more than twelve years.
References
Downing, David. (2001). The Great Depression. Chicago, IL: Reed Educational & Professional Publishing.
Eccles, Marriner. (1951). Beckoning Frontiers. New York: Knopf. Retrieved from http://www.mtnmath.com/banana/greatDepr.html
Hall, Thomas, and J. David Ferguson. (1998). The Great Depression: An International Disaster of Perverse Economic Policies. Michigan, USA: University of Michigan Press.
Jackson, David. (5 August 2012). "Obama Seeks Perspective on Economy." USA Today. Retrieved from http://content.usatoday.com/communities/theoval/post/2012/08/obama-seeks-perspective-on-economy/1
McElvaine, Robert. (2009). The Great Depression: America 1929–1941. New York: Random House.
Robbins, Lionel. (2007). The Great Depression. Auburn, Alabama: The Ludwig von Mises Institute.
Rothbard, Murray Newton. (2008). America's Great Depression. Auburn, Alabama: The Ludwig von Mises Institute.
Create your account
Always verify citation format against your institution’s current style guide requirements.