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Regarding the issue of credit exploration in the 1920s, and the contribution of the credit’s expansion into the process of onset of the Great Depression, it is necessary to refer to the facts from American History and, therefore, make the multipart analysis. Although the Great Depression was not really an unexpected event in the United States’ economy, no one could have predicted such magnitude that she took, and such disaster that she caused.
The main factors which played a great role in bringing about it might be regarded as the combination of the enormously unequal distribution of financial resources and wealth, stock market speculation, and the expansion of credit throughout the 1920s. Tracing the course of the American History of this decade, one may note that such disbalance of wealth led to the unstable situation in the economy.
The non – privileged middle and poor-class Americans, which constitute three-quarters of all United States population, had to spend all of their yearly incomes (which were usually less than 2500 dollars) to buy some consumer goods necessary for ordinary life: food, clothes, sometimes radios and cars. I refer to Robert S. Mc Elvaine’s publication, then it follows that “the bottom three-quarters of the population had an aggregate income of less than 45% of the combined national income; the top 25% of the population took in more than 55% of the national income…” (Mc Elvaine, 1981, p. 331).
Drawing from this, one may firmly assert that the decade of the 1920s was a vivid example of the disbalance in American History. In order to stabilize the appeared situation, credit sales were implemented. This was done because of the population’s inability to satisfy their basic needs because of the lack of money, thus those people, who wanted to purchase goods, were enabled to buy them on credit. According to Mc Elaine, “The concept of buying now and paying later caught on quickly. By the end of the 1920s, 60% of cars and 80% of radios were bought on installment credit … by 1929 the total amount of outstanding installment credit … [raised up to] 3 billion dollars” (Mc Elvaine, 1981, p. 41).
Such a strategy, invented by tricky banks, created artificial demand for the category of products that were not affordable for those people in real adequate circumstances. It seemed that the day of reckoning was put off, but it actually made the situation of soon–coming downfall even worse than it could previously be.
One may suggest regarding the given situation as the snowballing effect. When people were trying to telescope the future into the present, they could not have even imagined, that when that future would arrive, there would be nothing to buy that actually had not already been bought. Moreover, those defrauded people were not able to use their regular wages anymore if they wanted to buy some items which they did not have yet, as the banks expected that those wages would go to pay back those people’s past purchases.
These events alongside the closure of the various factories, stores led to the point when middle-class and poor Americans stopped purchasing with the help of credit, as they feared to lose their jobs and not be able to pay back the interest to the banks. Nevertheless, a lot of conscious and good workers lose their jobs. Such way an economic catastrophe, called the Great Depression, beginning in the United States’ history.
Works Cited
Mc Elvaine, Robert S. The Great Depression: America 1929-1941. New York: Times Books, 1981.
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