This study tests several hypotheses about the underlying causal structure of the inverse correlation between socioeconomic status (SES) and mental illness. It does this through the analysis of a longitudinal statewide database on acute psychiatric hospitalization in Massachusetts for the fiscal years 1994-2000 as well as supplemental census data. The modeling strategy used techniques of structural equation modeling and found that SES impacted directly on rates of mental illness as well as indirectly through the impact of economic hardship on low and middle income groups.