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How far was Speculation responsible for the Wall Street Crash?

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How far was Speculation responsible for the Wall Street Crash? Word Count : 916 By, Preethi Kumar, Grade 10. The main aim of this essay is to examine the various factors that caused the Wall Street Crash (The worst period of depression1) and to investigate how important each of them were. The main factors, which caused the depression, were Speculation, Overproduction, Lack of Export Market and the Distribution of Income. Speculation was one of the short-term causes, which gave way for the Wall Street crash. Speculation can be defined as a gambling of the shares in the stock market. It was mainly dependent on the credit system. Suppose 'A' speculates (or predicts) that the share prices would increase constantly through out the day. He buys 100$ share in the aim of making a profit by selling it to 'B' at a higher price. He succeeds in doing so. He sells it for 200$. However, 'B' does not pay 'A' the money. Instead he issues a credit note that he would pay 'A' back when he gains a profit. ...read more.


Hence, they decided to sell the shares too. The final result was that shares collapsed and became worthless because no-one is prepared to buy them. This was an important cause to the Wall Street Crash. Nevertheless, there were other important causes like Over production of goods, decrease in trade and uneven distribution of money between the rich and poor of the country. According to me, it was the uneven distribution of money that proved to be the main cause of the Wall Street Crash. The roaring 20s was not fruitful to majority of the American population. The rural farmers, mine workers, black population and the immigrant population were not even touched by the consequences of the boom. Unfortunately, the above mentioned groups of people formed America's major part of the population. About 60% of the American families had a per capita income less than 2000$(440�)2, the minimum sum of money required for basic elements of living. As only a very restricted percentage of population were rich, it was only this restricted amount that would buy the mass produced goods. ...read more.


The wealth of America was not divided evenly. The rich % of population had finished with all their purchases and money spending. The major population of America could not afford the mass produced goods. Hence, there was a surplus. Many companies could not sell their commodities. Consequently, the price of the goods decreased. As a result, the company profits lowered. This in turn meant that the share dividends decreased. Hence, the Investors of the shares were not interested in buying the shares. As a result, there was a fluctuation in the share prices. Thus, the selling of shares increased drastically. Contradictorily, buying of shares decreased. The doubt in the mind of investors which fuelled them to sell their shares was caused by over production of goods. This was in turn caused by the uneven distribution of wealth amongst the population. In other words, it can be said that, if the American wealth was distributed properly and evenly, there would have been no over production, the prices would have remained booming and increasing hence, the Wall Street crash would not have occurred. 1 http://www.bbc.co.uk/history/timelines/england/ear20_wall_street_crash.shtml 2 A Handout given by the teacher - chapter 11, page 26. ...read more.

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