The 1920's were viewed as the "golden era" for Americans. The stock market was at its peak and for many the "stock market came to represent the American economy, and the economy was booming." Looking from a distance the American economy looked great but put that same economy under a microscope and you will see a whole new world. A world that showed a economy that was headed for destruction. There were many events that led to America's Great Depression and unfortunately there was nothing that we could do but ride it out.
It all got started at the end of World War I with the signing of the Treaty of Versailles which forced Germany to pay great retribution for starting the war. This caused the German economy to collapse and with high tariffs in place the international trade scene dropped significantly. And when American investment dropped in 1928 and 1929, European economies also took a down turn. America began to purchase less and less European goods and the Europeans became less dependent on American goods. This caused the United States economy to slowly worsen.
While in America the 1920's were seen as a great time for invention and prosperity there were also many who did not benefit from the booming economy. Farmer, coal and textile workers struggled throughout the 1920's and were one of the first groups to plumate into a depression. Two percent of the population received 28% of the national income while the lower 60% only received 24% of the total. Businesses were able to increase profits while holding down wages and the prices of raw materials. This caused a huge drop in consumer spending. We made great strides in technology but no one was able to purchase the fruits of our labor.
Our "prosperity had been built on a shaky foundation." People were getting rich of the stock market but it was only a small percentage. These people gave a false hope to what the economy was really like. By the end of the 20's unemployment was high in lot of industries and the automotive and housing companies were beginning to diminish. With all of these factors in place the American stock market finally collapsed in 1929. The stock market did not cause the great depression it was m early a result of cause and effect. The crash of the stock market just showed us how weak our economy was.
It revealed weaknesses in our banking system with over 7000 banks closing in the 1920's. It also showed us how big of a part the foreign market plays in our economy and how trade between countries is essential for economic growth. The stock market crash may even had been prevented or had less of an impact if the government would have regulated businesses or the stock market better. A better distribution of income would have increased the purchasing power so more people would have been able to buy the refrigerators, cars and other products that were roaring out of our factories. The problem was that people viewed the economy through the market not taking into consideration all the other factors that make for a strong economy such as imports, exports and government spending.
The stock market crash had a great affect on the United States and the world but it was not one of the contributing factors to the worst depression in America's history.