16th October 03

Why did the boom in the economy come to a rapid end in 1929. What were the effects on American society?

The boom in the came to a rapid end in 1929 because of a number of reasons which caused the whole of the American economy to collapse and the boom to come to an end. There were a number of effects on society aswell.

There were long term and short term causes. Most of the causes were long term but the short term were the ones that triggered the end to the boom. The long term causes were: -

Boom in the house prices – They rose sharply then fell again and kept doing this. This problem left many Americans with negative equity.
Over production in Industry – There was too many unsold consumer goods but companies did not cut back and flooded the market.
Over production in Agriculture – Improved farming techniques resulted in too much food. The market did not expand to use the extra food and many farmers were put out of business.
Trade – USA was struggling to sell goods to Europe who now had other tariffs. They were short of money and found it difficult to repay the US.
Too many small banks – The small banks did not have the financial means to deal with the rush to withdraw money during the crash. Many of the banks collapsed.
Falling demand – The wealth was not even. Many had brought the new goods but had done so with credit. Most people were in debt

The short term causes were: -

The rise of the stock market and speculation – Share prices had risen and the prospect of making money appealed to many people. Investing in stocks and shares had become popular. The number of shareholders had risen drastically. The availability of credit meant many were buying shares ‘on the margin.’ As the prices continued to rise many gambled with even bigger sums of money taking out bigger loans.
Loss of confidence and the sudden fall in prices – the market started to slow down so people lost ...

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The short term causes were: -

The rise of the stock market and speculation – Share prices had risen and the prospect of making money appealed to many people. Investing in stocks and shares had become popular. The number of shareholders had risen drastically. The availability of credit meant many were buying shares ‘on the margin.’ As the prices continued to rise many gambled with even bigger sums of money taking out bigger loans.
Loss of confidence and the sudden fall in prices – the market started to slow down so people lost confidence in the market and started to sell their shares. Because many were selling everyone rushed to sell their own shares. A group of bankers tried to stop the selling by investing $30 million in the stock market but it didn’t work. On the 29th October 16 million shares changed hands at very low prices. This was the crash.

The society was largely effected by the crash. Most of the major investors in wall street were rich and many of them were reduced to bankruptcy by the crash. It was the rich people who bought the luxury goods which companies had produced in the 1920’s and as they had been reduced to bankruptcy they could no longer buy any of the good instead they were selling them for whatever they could get. And since thousands of people were selling goods at a time when few people had money to buy them, they were not getting much for their cars, yachts and houses. Ordinary people were also hit by the losses they incurred on wall street. The vast majority of the new investors in the 1920’s were people who were investing small amounts. Their losses were small, but often led to personal tragedy. The days of buying new cars and household gadgets were gone.

What really made the wall street crash have such an impact on the American economy was the amount of money people owed and could not pay back. Stockbrokers found their customers could not pay back what they borrowed and went out of business. Some stockbrokers and major financial advisors threw themselves from office windows and died on the street below. Banks were owed millions of dollars by stockbrokers. They had also lent billions to other investors. To make matters worse some banks had invested huge sums of money on wall street and lost most of it. In desperation the banks called in whatever loans they could get their clients to repay, but it was usually only a fraction of what was lent.

The whole economy crashed because of they didn’t look and think, right at the end of WW1 we need to cut down on food so we don’t flood the market. It was also due to the availability of credit aswell because if there was no credit there wouldn’t be people buying shares ‘on the margin‘ which meant they were borrowing money from a bank then buying your shares with that then hoping they rise so you can pay back the bank and still have some profit.

By Alexandra Fulker 10SW