The great depression(conditions leading to the depression) Assignment

The great depression(conditions leading to the depression) - Assignment Example In the early-mid 1920s, production by farmers was far more than the population consumed. Mechanization in production techniques meant there was an increase in output that was expensive thereby putting firms in debts. Falling food production and reduction in land prices resulted in agricultural losses leaving vast populations poor and unemployed. With the demand dropping and supply increasing, the price of products reduced leaving the over-expanded firms short-changed leading to closure (Saint-Etienne, 2013). Top workers had their income rising by 75% while the bottom workers only enjoyed a 9% rise in wages. With industrial production growing by 50% in 1920s, there was wide a gap between high-income earners and those struggling in poverty leading to a reduction in disposable income to purchase the produce. With extensive unemployment, the poor required aid from the already cash-strapped authorities further deepening the financial problems. Explosion of stock markets built on speculation as seen in modern capitalist economy caused investors to buy stock believing it was going to rise quickly so that they could sell their stocks later. Most stock purchases were on credit as investors were required to have 5% of the stock’s value with the rest being supplied by a loan ‘buying on margin’. Speculation together with the short-term outlook of the investors did not offer consistency and stability for the system to yield economic benefits. The resulting tension led to selling of the stock causing a mini crash resulting in mass panic as the middle and upper classes lost money. The presence of numerous small banks with insufficient resources to handle the high demand for their money in conjunction with increasing nervousness about the state of the stock market played a major part in initiating the Great Depression. For this reason, they had to sell assets, borrow off other banks or shut down. Drying up of credit and reduction in lending