During that war, U.S. farmers had increased food production to feed European allies. Afterward, prices and demand dropped, and farmers were stuck with an oversupply they couldn’t sell.
“Coming out of the war when exports fall, [farmers] get into this very unfortunate feedback loop,” says David Sicilia , a history professor at the University of Maryland. “Prices are falling and in order to continue to survive, farmers basically respond by planting even more. So there’s overproduction layered on top of overproduction, and so they get into this kind of vicious cycle.”
Overproduction also became a problem with manufacturing companies. Even though families that couldn’t afford to pay for radios, cars, dishwashers and other expensive items upfront could now purchase them on credit, the amount of new products companies produced still exceeded the number that families were able to buy. One of the contributing factors to this overproduction was companies’ desire to expand and drive up profits for shareholders.
Anti-Labor Climate
There was a strong belief under the presidents of the 1920s that prioritizing shareholder profits would create a stronger economy. Chiles says that when New York Governor Al Smith tried to gain state control of hydroelectric development to give residents lower energy rates, a memorandum from President Calvin Coolidge ’s administration opposing the idea stated that it was acceptable for New York residents to pay a lot for electricity because this increased the price of stocks.
Although many factory workers saw their wages increase modestly during the 1920s, these wages didn’t keep up with their productivity. This was because company executives gave more profits to shareholders than the workers who were earning those profits.
It was difficult for workers to fight for higher wages because “there was a movement in terms of more aggressive application of labor law,” says Mark Joseph Stelzner , an economics professor at Connecticut College. Courts often ruled in favor of businesses (the Supreme Court even struck down a child labor law in 1918). Southern Black workers in particular had little recourse against Jim Crow laws that forced them to work for low wages. In this anti-labor climate, unions were weak and strikes became extremely rare.
Great Depression Causes
Calvin Coolidge, former president, and Alfred E. Smith, who was defeated when he ran for president in 1928, are seen in conversation when they met as members of the non-partisan railroad committee, c. 1932.
Bettmann Archive/Getty Images
There were many factors that caused the Great Depression, but Sicilia argues that the stock market crash of 1929 was not one of the major ones. Instead, he says, the major drivers were more complex. One of the main factors was the government’s adherence to the gold standard . Another, he argues, was income inequality that had developed throughout the 1920s.
“With increased inequality you have a much less stable economy because of the fact that the most stable component of GDP is essentially consumption,” Stelzner says.
Many Americans tried to call attention to this inequality by arguing that “Coolidge prosperity” was a myth. “Prosperity to the extent that we have it is unduly concentrated and has not equitably touched the lives of the farmer, the wage earner and the individual businessman,” said Al Smith when he accepted the Democratic nomination for president in 1928.
Smith lost the election to Herbert Hoover , who argued that Americans were experiencing prosperity. Soon after Hoover took office, the U.S. economy crashed.
