Causes of the Wall Street Crash

by American industries: American industries were producing more consumer goods (such as cars and electrical appliances) than they could sell. The economic boom had been based on the growing sale of these goods, sold specially to the rich and the middle classes. As most of the people had already bought these goods and the poor could not afford them, production started decreasing together with sales. The fact is that when companies develop the prices of the shares go up, but if they don’t, prices of shares go down. Speculators on the American stock exchange became nervous about this, because companies started losing the success they had had, and that meant that the prices of the shares would soon start declining. As a consequence, more people started selling their shares, not wanting to lose their money.The actions of speculators: Speculators are people who buy shares and keep them for a short time in order to earn some quick money. They borrow money from banks, they buy the shares, then they sell them again at a higher price, and with that money they pay the loan and still have money for themselves. Their action depended on confidence. If they were sure that prices would keep on rising, they bought shares. If they thought that prices would stop rising, they sold them. This Crash was caused by the lack of confidence from investors. People saw that the companies they were investing on were losing successfulness, so all of a sudden there were more sellers than buyers. Besides, the inflation of share prices was unreal, because companies were not growing at the same rate.No export market for US goods: American industries started having overproduction, so they needed to sell their goods somewhere. They tried to export to Europe. However, Europeans could not afford American goods either; and they had put up their own tariffs to protect its industries. So companies did not have a market to sell their goods, and this led to a decreasing demand. Industries started declining, because they could not sell their goods, so prices of shares declined too. People became desperate to sell their shares, which were losing value.Decision by the banks not to support share prices: When the Crash began, banks intervened to stabilise the situation by buying stock on October 24th. This was temporarily successful, since confidence returned and prices went up again. But on October 29th there was a massive fall of prices of shares again, so banks decided not to buy stock anymore, since this would make them go bankrupt. Prices fell again and people sold all their shares for a fraction of their original value.