MEDIA

THE GREAT DEPRESSION

When I was a small child in the 1960s, I would often hear those of my parents' and grandparents' generation speak of the extreme hardship and frustration they endured during the Great Depression years of the 1930s. For them, that era was recent history, and they could still feel the sting of those uncertain and challenging times. Those of us who were born after World War II have never faced such a prolonged period of hopelessness and despair. Nothing in our experience can compare.

HOW DID WE GET THERE?

Although many point to the stock market crash of October 1929 when asked to explain the cause of the Great Depression, that cataclysmic event was more a symptom of the coming disaster than a cause. In fact, there were a great number of economic, political and other factors that combined in just the right way to create a perfect storm at that point in our history. If just some of those factors had been avoided, the economy may have merely entered a period of correction manifested as a moderate recession rather than the deepest depression our nation has ever known.

The seeds of calamity may have been planted in the economic boom many technological advances of the post World War I era of the 1920s. Without the burden of supporting a large military force in Europe, American farmers were producing more than enough food to feed the nation. Newly popular consumer goods such as radio, refrigerators, washing machines and better, faster automobiles were produced in record numbers, bringing down the prices of these goods to levels at which they were affordable to middle class American families.

This was also the age in which consumer credit became an entrenched element of American culture. Those much sought after appliances could be had for only five dollars down and five dollars a month. A construction boom and development of less inexpensive building materials and methods brought more affordable housing to the masses. Banks and other financial institutions made mortgages available to millions of people who would never have been able to pay cash for a roof over their heads. With the manufacturing and other industries booming, which put more money into the pockets and bank accounts of most Americans and a shorter average work week, there was extra time and money for entertainment and recreation. It appeared that America's time had arrived.

This was also the age in which middle class Americans discovered the stock market. Long an important economic tool of the wealthy, the increase in disposable income, coupled with rapidly rising stock prices fueled by record industrial output was suddenly an attractive option for those hoping to move upward in society. This trend went well for a while. Large numbers of investors meant that companies could expand and produce even more of the goods we craved. Soon, people were taking out loans to provide money for stock investments. Consumer debt soon increased significantly, although virtually all these investors were convinced that the boom would last forever.

However, one consequence of the rapid increase in stock prices was that the stocks, due to forces of supply and demand, were soon worth more than the economic health and real earnings of the companies could justify. The runaway gravy train was fueled by pure speculation and dreams. Toward the end of the decade, the bubble showed signs of stress. There were downturns in the market, but all were sure that those signs were a temporary adjustment. There was no need to worry. But, in reality, there was much to worry about. The economy couldn't last for long if it was propped up by air and promises.

Another significant factor developed as a result of rapid growth in our urban areas. The growth of industry meant that there were many new jobs in the cities. Millions of Americans left farms and small towns in the South and West to seek better wages in the factories. However, the increase in city population meant that much more infrastructure was required to provide for all the people. Public services and utilities could not keep up with the inflow of migrants. As a result, many of American's cities became overcrowded and unhealthy.

When the bubble finally burst, there was not enough real wealth to run the country. Banks were faced with massive debt they could not collect. Soon, panic ensued and worried investors rushed to the banks to try to withdraw their deposits before cash reserves were depleted, resulting in the famous "bank runs" common to the early Depression years .Citizens owed much more money than they could make. Manufacturers suddenly had warehouses full of goods they couldn't sell. Prices fell and companies across the nation cut production and laid off millions of workers. The storm had arrived.