The massive instability of the United States' Economy in the 1920's was the most prominent cause of the "Great Depression" of the 1930's. The depression began in late 1929 and continued on for about a decade, spreading throughout almost all industrialized ares of the world. This depression was having devastating effects on the United States. The stock market was in shambles. Banks everywhere were going under. Businesses couldn't continue to operate.
Farmers fell into bankruptcy. A quarter of the working force, or 13 million people, were unemployed in 1932, and this was only the beginning. The gap between "rich" and "poor" was growing at an alarming rate. An ever increasing gap between the wealthy and the working class peoples made the United States economically unstable.
60% of the US population were under the poverty line. The working class now had less money to spend, while businesses began producing more and more. From the mid to late 20's wages were increasing at a rate one fourth as fast as productivity was increasing. As production costs fell quickly, wages were rising much more slowly, while prices remained constant. The bulk benefit of the increased productivity then went into corporate profits. This "gap" was not limited simply to the economic classes, it had spread to entire industries.
There was a large lack of diversification in the American Economy. A mere 200 cooperations controlled more than half of the cooperate wealth. While there were some industries that were doing unprecendently well, there were many others that were on a steady decline. For example; during the same year that the automotive industry was recording record profits, the agricultural industry was being dealt a serious blow. The prices of farms dropped dramatically, and due to a huge surplus, the price of food dropped 72%. Many of the working class no longer had the money to spend on things other than the essentials, thus the US economy had only one other choice left to rely on.
The American economy relied heavily upon the luxury spendings and investments of the wealthy to stay afloat. This reliance would soon pose a huge threat as these investments were based on the wealthy's confidence in the economy. The threat was made obvious when conditions of the economy took a downturn (the crashes of 1929) and the spending of the wealthy came to a sudden halt. The confidence of the wealthy had been shattered. Due to the maldistribution of wealth, the economy of the 1920's was one very much dependent upon confidence, the market crashes of 1929 undermined this confidence and had a "domino effect" sending the country into catastrophe. The rich stopped spending on luxury items, and slowed investments.
The middle-class and poor stopped buying things with installment credit for fear of loosing their jobs, and not being able to pay the interest. As a result industrial production fell by more than 9% between the market crashes in October and December 1929. As a result jobs were lost, and soon people starting defaulting on their interest payment. Radios and cars bought with installment credit had to be returned. All of the sudden warehouses were piling up with inventory. The thriving industries that had been connected with the automobile and radio industries started falling apart.
Without a car people did not need fuel or tires; without a radio people had less need for electricity. The massive instability of the United States' Economy in the 1920's was the most prominent cause of the "Great Depression" of the 1930's. the ever increasing gap between the wealthy and the middle class as well as the countrys' heavy reliance on the investment and spendings of the wealthy were quickly making the United States economically unstable, but the maldistribution of wealth was not limited solely to the economic classes of the time. There was not nearly enough diversification throughout the economy, as over half of the cooperate wealth was controlled by a relatively small amount of companies. Due to the maldistribution of wealth in the 20's, the whole economy was far too dependant upon confidence, which was totally undermined by the stock market crashes of 1929..