September 28, 2006
What Caused the Great Depression? Posted by Joshua Zeitz at 08:00 PM EST John Steele Gordon writes: “I think it’s a stretch, to put it mildly, to say that the uneven distribution of wealth in the early twentieth century led to underconsumption, which led to the Great Depression. It was a bit more complicated than that.” It’s always nice to be condescended to by Mr. Gordon, but in this case it’s only fair to remind him that I only suggested that “the distribution of wealth and income [in the 1920s] was alarmingly uneven, contributing ultimately to the crisis of underconsumption that helped fuel the Great Depression.” I never claimed it was the only or the sole cause of the Depression. That said, Mr. Gordon, who is reflexively dismissive of any idea that doesn’t flow from his pen or that challenges the sanctity of Adam Smith and the invisible hand, might want to consider that historians of far greater accomplishment than he or I have identified uneven income and wealth distribution as a cause of the Depression. In his general text America in the Twentieth Century, James T. Patterson, a Bancroft Prize winner and Ford Foundation professor of history emeritus at Brown University, devotes several pages to explaining the Depression. After reviewing some key ingredients—“the jerry-built nature of America’s corporate structure by 1929,” the instability of the banking system, “rampant speculation,” and the downward spiral in the agricultural sector—he explains that the American economy stagnated by 1929. “At the root of this stagnation was the maldistribution of income in America. . . . This distribution of income was no worse than it had been in earlier decades. The middle classes, in fact, formed a higher percentage of the population. But therein lay a key problem: ‘new era’ prosperity depended as never before on mass purchasing power. Until 1925 or so this consumer power, fueled by gains during the war years, was sufficient to promote growth. . . . By 1927, however, many people who could afford to buy such goods [as houses, cars, and furnishings] had already done so. As this ‘saturation point’ was approached, demand slackened, production leveled off, and payrolls stabilized. . . . These impediments to increased purchasing power helped make the depression of the 1930s deeper and more severe than any in the American past.” David M. Kennedy, the Pulitzer Prize-winning author of Freedom From Fear: The American People in Depression and War, 1929-1945 and a professor at Stanford University, agrees. Kennedy writes, “Mass production made mass consumption a reality. But as [Herbert] Hoover’s investigators discovered, the increasing wealth of the 1920s flowed disproportionately to the owners of capital. Workers’ incomes were rising, but not at a rate that kept pace with the nation’s growing industrial output. Without broadly distributed purchasing power, the engines of mass production would have no outlet and would eventually fall idle. The automobile industry, where Fordism had begun, was among the first to sense the force of this logic.” Of course, with a large portion of the country—namely, farmers—already living in dire economic circumstances, under-consumption was bound to pose a problem. And indeed it did. The Great Depression owed to a great many factors, but at its core was the uneven distribution of wealth and income that ground America’s mass consumption economy to a halt.
|
