Causes of the Great Depression . Chapter 17, Section 1. Prosperity Hides Troubles. Throughout the 1920s, the U.S. had experienced economic prosperity with two Republican presidents.
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Underneath the prosperity, though lurked several problems that compounded throughout the decade.
Farmers had increased production, bought more land, and purchased machinery on credit during WWI. However, production did not immediately decrease after the war. Farmers were unable to sell their abundant crops, pushing them further into debt.
When industrial wages rose steadily, their output increased at a much greater rate; management made more. The rich Americans did not make up for the lack of purchasing power of the lower-wage Americans.
Buying on credit compounded with each year. More and more Americans bought what they could not afford.
The American public associated the President’s name with suffering, so eventually Hoover had to get the government involved.
He urged Congress to create the Reconstruction Finance Corporation (RFC) to provide loans to railroads, big businesses and banks. By doing so, they would employ more workers and production and consumption would increase again.
This theory was known as trickle-down economics– the more wealth at the top of society, the more that was available to ‘trickle-down’ to the poor.