Industrial failure was a cause of unemployment, deflation, and ultimately a reduced circulation of money throughout the economy leading up to, and throughout the Great Depression.
When the stock market crashed and panic ensued, depositors withdrew money from banks around the country.
After banks lost adequate funds to distribute loans and the credit system froze up, there was less money circulating throughout the economy. This led to deflation, and businesses had the cut costs by reducing the amount of workers they were required to pay. Louise Dougherty’s father owned a bank in Perkins County when the depression hit. She describes the result of mass hysterical withdraw of funds. “He worked hard to keep the bank afloat. But the Depression went on too long, and eventually he was forced to go out of business.”(1)
When workers became unemployed, they were less inclined to spend money on goods and services which led to even less money circulating through the economy.
When workers became unemployed, they were less inclined to spend money on goods and services which led to even less money circulating through the economy.
Industry struggled as more and more workers were unemployed because of this deflation. As a result, businesses had to close down because of fragile economic circumstances and American citizens were forced to deal with personal debt from a period of false prosperity and buying on credit immediately before the stock market crash of 1929.
Notes
1. “Bank Failures”, Farming in the 1930s, accessed April 1, 2015, http://www.livinghistoryfarm.org/farminginthe30s/money_08.html.
2. “Great Depression Quotes”, Brainy Quote, accessed April 6, 2015, http://www.brainyquote.com/quotes/quotes/j/jamesefau621181.html?src=t_great_depression.
Bibliography
“Bank Failures”. Farming in the 1930s. Accessed April 1, 2015. http://www.livinghistoryfarm.org/farminginthe30s/money_08.html
“Causes of the Great Depression”. The Great Depression. Last updated 2015. Accessed April 1, 2015. http://thegreatdepressioncauses.com/causes/
“Great Depression Quotes”. Brainy Quote. Accessed April 6, 2015. http://www.brainyquote.com/quotes/quotes/j/jamesefau621181.html?src=t_great_depression
“Herbert Hoover Life Timeline”. Quotes by…?. Accessed April 2, 2015. http://www.quotesby.net/Herbert-Hoover
“Herbert Hoover on the Great Depression and the New Deal”. The Gilder Lehrman Institute of American History. Accessed April 6, 2015. http://www.gilderlehrman.org/history-by-era/new-deal/resources/herbert-hoover-great-depression-and-new-deal-1931%E2%80%931933