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

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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.

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