• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Explain the importance of the American stock market in 1929 in bringing about the depression.

Extracts from this document...

Introduction

Explain the importance of the American stock market in 1929 in bringing about the depression. The Wall Street Crash of October 1929 is the one trigger factor that many attribute to bringing about the Great Depression. However, despite the fact that around 61% of all stock transactions in America were handled by the New York Stock Exchange, historians and economists alike have argued that such a crash was unlikely to have single-handedly wrecked the world's economy. While it is true that the stock market crash had a profound impact on the depression - effectively deepening the already mounting problems - it must be assumed that other factors contributed to both the cause and the severity of it. There are many reasons why the stock exchange crashed in 1929. Perhaps to sum these reasons up, it is enough to say that economists of the time were utilising a 19th century understanding in the rapidly expanding and modernising 20th century economic structure. The structure and nature of the stock market is an important factor leading to its crash. The "bull market" was a term used to describe the trend of rapidly rising prices and massive volume of buying and selling. Many historians have stated that the main reason for the growth of the bull market, other than the desire of the people to "get rich quick", was the fact that ...read more.

Middle

To further exacerbate the situation, high US tariffs, such as the Fordney-McCumber Tariff Act that raised rates on imports by 33%, encouraged existing and prospective purchasers to look elsewhere for their goods. On top of this, government policy seemed to completely ignore the farming community, and it's failure to aid agriculture laid way for severe repercussions. Farmers were left in doubt as to their future, in debt and with permanent shortages of money. As one historian put it, "farmers struggled with a depression throughout the prosperity decade". Perhaps more important than this, as a factor of adding to the causes of the depression, was the mal-distribution of national income. There was becoming a considerable and significant gap between the rich and the poor. The main reason for this seems to be because, throughout the 1920's, corporate profits increased massively, where the workers wage rose only to a miniscule degree in comparison. The large sums of money enjoyed by the corporate businesses enabled more investment and more production, while at the same time, the low amount of personal funding of the general public meant that increased purchasing power was not possible. Therefore, while businesses used their capital to produce more and more, the public had not the money to consume it. ...read more.

Conclusion

Countries with large debt payments to make to the USA, on top of other financial difficulties realised that the best way to get the necessary funds was to increase their imports to the US. Hoover predicted this move and so sharply increased tariff, making the approach of larger imports into America inconceivable. However, this meant that the United States was throwing a large part of the world into an economic slump that could easily be tipped over - by the crash. The New York Stock Market crash of 1929 was indeed an important, if not vital factor in the triggering of the depression, but cannot be held to have caused it. By 1929, America's economy was riddled with faulty policy and poor understanding by experts. As Galbraith said himself; "the economy was fundamentally unsound". Stock markets have crashed before and since this period, with little or no setback to the state of world affairs. If the American economy had been strong, or even workable, then the Great Crash would probably have caused nothing more than a short-lived recession. Causes of the great depression, such as loss of confidence in the market, the banking and corporate system, international financial problems, overproduction and under-consumption, mal-distribution of wealth, and all the other faults with the American system were all wrapped up in the stock market crash, and all worked together to crate the most devastating economic set-back of recent history. Morgan Williams ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Causes of the Great Depression

    banks loans * U.S. had been creditor with $638m annual surplus 7. Republican Policy * "The Ordeal of Herbert Hoover" * laissez faire, balanced budget, trickle down, voluntarism * no use of monetary or fiscal policies * Agricultural Marketing Act, Hawley-Smoot tariff, RFC of Jesse Jones * Three Little Pigs Great Depression links Main

  2. Retailing In India - A Government Policy Perspective

    The effect of the higher interest rates paid by the small retailers is seen in their prices and profit margins. Such a situation would lead to a huge price disparity between the foreign owned retail chains and local Indian retailers.

  1. Citigroup has successfully faced the challenges of the 19th and 20th centuries and has ...

    This situation provides both opportunity and threat. The demand for insurance and products and services aimed at elderly people will see a dramatic increase. The importance of cultural diversity and racial harmony at the work place needs to be stressed.

  2. Case Study: The Home Depot

    Actually, Home Depot is the largest retailer of old growth rainforest wood in the USA. This issue of deforestation together with protest of for example environmental groups made the heavy weights in the home improvement industry to become 'green' and change their way of conducting business to gain in the public opinion.

  1. Chinese car market overview. Citroen case study

    Vehicles are also much cheaper than a few years ago, and can be considered as a real investment for workers for example. Mentalities therefore are changing, and instead of realizing how useful a car can be, people now start thinking how difficult it is to live without a car.

  2. An Empirical Investigation into the Causes and Effects of Liquidity in Emerging

    Particularly relevant to the context of this paper is the liquidity constraints of holding such debt and how this effects investors choices. Similarly, it is important to consider the potential financial stability implications of the governments in developing economies relying heavily on bond issuance as a form of financing government spending.

  1. Review of Strong Interest Inventory.

    E-consultation is provided to answer any questions and explanations for any problems along with the package purchased SII was reviewed by Campbell and Hansen in 1981, 1985 and 1994 finally to enhance the face validity and also update the types of occupation and interest as the society and environment are changing with time.

  2. This report will establish the opportunities and threats presented to Sony by the EU ...

    cheaper price which will decrease the amount of revenue Sony take in. Sony would have to be diplomatic on training employees so it does not de-motivate or restrain them so they are inoperative to work effectively. Sony would have to compete on prices but they have to do it to

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work