The largest reason for the growing gap between the rich and the working-class people was the sudden increase in manufacturing during the 1920’s.
The people of the working class were significantly increasing their output, but their wages only increased slightly. For example, the average worker out put from 1923-1929 increased about 32%, but the average income of the worker only increased about 8% (Gusmorino, Main Causes of the Great Depression). Therefore one may conclude that wages only increased one-fourth the amount production increased. Another amazing feat of the manufacturing increase was that prices for goods stayed the same, therefore the executives in the companies were keeping the mass amounts of profit that were now coming into the company. In fact, one can see that top executives in a certain company increased significantly because their salaries from 1923-1929 rose 64% (Gusmorino, Main Causes of the Great Depression), eight times more than what the workers wages increased.
The “roaring twenties” was an era when the United States prospered tremendously. The national income rose from $74. 3 billion to $89 billion (Gusmorino, Main Causes of the Great Depression). The whole American population did not live through the benefits of the “Coolidge Prosperity.
” For example McElvaine, in his research on the Great Depression, stated, “in 1929 the top 0. 1% of the population had an income equivalent to the bottom 42% of the population,” (McElvaine, Causes of Depression). That same top 0. 1% of the population in 1929 had 34% of all the savings, while 80% of the population had no savings at all. A good example of this maldistribution of wealth can be seen with Henry Ford. In 1929, Ford reported an income of fourteen million dollars, while the average income of the American people was seven hundred and fifty dollars annually (McElvaine, Causes of Depression).
If one were to calculate these numbers by present daily standards, with the average income at eighteen thousand dollars, Henry Ford would be making an astonishing three hundred and forty five million dollars. However, one should be reminded that Ford was not the only man in America making this amount of money, there were many people just like Ford around the Nation. Comparing the 1920’s to today, one could say that such businessmen are like the Internet CEO’s today. With such a growing gap in the income of the people, it was without surprise that such a catastrophic event could occur. The Federal government also could be held responsible for contributing to the growing gap between the rich and the working-class.
The President at the time, Calvin Coolidge, and the conservative Congress favored business; additionally, they supported the wealthy individuals who controlled the business. One great example of the federal government helping the wealthy of the nation came in the Revenue Act of 1926. This acted decreased the amount taxed on a person’s annual salary. For example, a business owner in the beginning of 1926 would have expected to pay six hundred thousand dollars on his annual one million dollar salary; however, when the Revenue Act of 1926 was passed, this businessman was obligated to pay only two hundred thousand dollars of his annual salary (None, Causes of The Great Depression).
The driving force behind this tax cut was President Coolidge and Andrew Mellon, the Secretary of the Treasury. Besides the executive and legislative branches, the judicial branch was known for their influence in the growing gap between the socioeconomic classes. In a 1923 Supreme Court case named Adkins vs. Children’s Hospital, the Supreme Court declared minimum-wage legislation to be unconstitutional (Kanjas, Timeline of the Great Depression). The impact of this a declaration showed that employers did not have to pay their workers any certain wage so that the top executives and stockholders of a company may collect larger profits.
The large gap growing between the United States citizens was creating a very unstable economy. According to economists who have studied the Great Depression, in order for the economy to operate appropriately the total demand must equal the total supply. Unfortunately in the twenties this equilibrium with supply and demand was not held; there was incredible excess in the amount of goods produced and unfortunately the price of goods
