This dilemma was also further exacerbated by the fact that the Federal Government encouraged this situation. For example, President Coolidge signed the Revenue Act of 1926, which in effect reduced tax for the wealthy. "... he was able to lower federal taxes such that a man with a million-dollar annual income had his federal taxes reduced from $600,000 to $200,000.. Even the Supreme Court played a role in expanding the gap between the socioeconomic classes. " (Gusmorino P.A. 1996)
This situation was further worsened by another imbalance, namely the disparity between supply and demand. This was to have far-reaching and damaging effect on the economy and was directly related to inequalities in wealth distribution. " for an economy to function properly, total demand must equal total supply. In an economy with such disparate distribution of income it is not assured that demand will always equal supply." (ibid)
In effect this was to lead to a surplus of goods and products. The surplus of goods in themselves were not the problem but rather that "those whose needs were not satiated could not afford more, whereas the wealthy were satiated by spending only a small portion of their income." (ibid)
Another factor that was to lead to the crisis was the increase in purchasing; this was to initiate the practice of buying on credit for those who did not have immediate purchasing power. Credit buying become fashionable and "By the end of the 1920's 60% of cars and 80% of radios were bought on installment credit. Between 1925 and 1929 the total amount of outstanding installment credit more than doubled from $1.38 billion to around $3 billion." (ibid)
This strategy created artificial demand for products which people could not ordinarily afford. It put off the day of reckoning, but it made the downfall worse when it came. By telescoping the future into the present, when "the future" arrived, there was little to buy that hadn't already been bought. In addition, people could not longer use their regular wages to purchase whatever items they didn't have yet, because so much of the wages went to paying back past purchases.
There are also numerous other causative aspects that could be mentioned and expanded on. One of these is the imbalance in industry. The imbalance in wealth meant that only a few industries were almost completely dominant in the economy. In the United States these were the automotive and radio industries. This in turn meant that if these industries were to be negatively affected, then the entire economy would be affected. This was what was eventually to take place. "When the automotive and radio industries went down all their dependents, essentially all of American industry fell. Because it had been ignored, agriculture, which was still a fairly large segment of the economy, was already in ruin when American industry fell. (ibid)
In summary the Great Depression was caused by numerous factors which led to the resultant stock market crash. This had a concomitant effect on confidence and spending relationships within the economy. Once the rich stopped spending and the credit limits of the middle and poorer classes were exhausted, then industrial production fell. With the resultant market crash jobs were lost and many problems were forced into a situation where they began defaulting on their interest payments. "...Unemployment grew to five million in 1930, and up to thirteen million in 19324. The country spiraled quickly into catastrophe. The Great Depression had begun." (ibid)
The core reasons for this situation are summarized as follows.
The core of the problem was the immense disparity between the country's productive capacity and the ability of people to consume. Great innovations in productive techniques during and after the war raised the output of industry beyond the purchasing capacity of U.S. farmers and wage earners. The savings of the wealthy and middle class, increasing far beyond the possibilities of sound investment, had been drawn into frantic speculation in stocks or real estate. The stock market collapse, therefore, had been merely the first of several detonations in which a flimsy structure of speculation had been leveled to the ground.
The Great Depression)
There are of course many other complex factors, such as the problem of the gold standard which played a major part in monetary causes of the Great Depression. However an explication of these causes is outside the range of the present topic.
4. Canada
All of the factors discussed above have application to the situation that was to develop in Canada....
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