Did the Wall Street Crash cause the depression?
DID THE WALL STREET CRASH CAUSE THE DEPRESSION?
The Wall Street Crash took place in 1929, this was when stock market prices fell suddenly due to the Americans panicking and loosing their confidence. Once they saw some people were selling their shares they decided it would be best to sell theirs too.
The Depression was the result and final stage in which the whole of America was dragged into a Depression. Most people had become poor, even those who were especially rich and those who hadn't taken part in shares too.
To answer the question " Did the Wall Street Crash cause the depression" we must analyse other factors which were taking place during that time which may have contributed in causing the depression. There were many other important factors which were taking place at the time which had started to put much of America into a depression already. This is why I believe that there are many other factors which helped to cause the depression and it would be simplistic to say that the Wall Street Crash was the only one.
Throughout this essay I hope to argue that the Wall Street Crash was the final trigger which caused the depression, but not the main cause. The Wall Street Crash was simply a catalyst which sped up the process and bought what was going to happen quicker. The main causes of the depression was the overconfidence of the Americans and the actions of the government, this is because all the other causes can be traced back to these two causes.
The reason for overconfidence is that during the 1920's the cycle of prosperity was taking place and this created a felling of confidence among the American people, which encouraged them to spend money on buying goods, and invest in shares. More and more shares were being bought and people were becoming rich quickly, this made them overconfident as they believed that these times were here to stay.
Overconfidence led the Americans into making the decisions they made; like borrowing money they could not pay back and using it to buy shares, and overconfidence also led to the Government turning a blind eye on the blatant problems which were occurring all around them. The Government saw companies prosper and fooled themselves into believing that this was the case for the whole of America.
Overconfidence led to the government's and the people's short-sightedness and their complacency.
These two factors will be discussed in more detail as we go through other factors which caused the depression as they are the root cause of them
What I believe to be one of the most important causes of the depression and the most long term is the inequality between the rich and the poor. This was a long term cause as it was taking place well before the boom, and got worse during it. It seemed that the new wealth of the Americans in the 1920's was being shared by everyone. However, for many the boom was not a reality and many of the population was suffering. Half of America was made of farmers or lived in rural areas and with the invention of combine harvesters, they were able to grow more crops. So much that their supply outweighed the demand. As a result, food prices dropped and farmers income fell. Many farmers found themselves out of work. Black people and immigrants had a similar experience, many lost their jobs on farms, and those that didn't were now paid much less. So if half of the population were farmers, and they were in a depression, then how could America be prospering? This tells us that half of the American population were already in a Depression even before the Wall Street Crash.
I believe that the Governments " laissez-faire" (non-interference) policy can be blamed for this as it did not place any control on the economy. It meant that businesses continued to grow. This may well be a good thing for some as they will continue to get rich but not for others who will continue to grow poor. Also, the Government lowered taxes, so this gave the rich more money to invest in new factories. If the government put taxes on the rich, they could use the money to help out the poor. They should have distributed money more ...
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I believe that the Governments " laissez-faire" (non-interference) policy can be blamed for this as it did not place any control on the economy. It meant that businesses continued to grow. This may well be a good thing for some as they will continue to get rich but not for others who will continue to grow poor. Also, the Government lowered taxes, so this gave the rich more money to invest in new factories. If the government put taxes on the rich, they could use the money to help out the poor. They should have distributed money more evenly, as half of Americans were living on less then $2000 a year which was "below the poverty line" as it was less then minimum wage Instead they chose to ignore this inequality, which as a result led to half of the Americans being poor. The reason for the government's complacency can be led back to overconfidence after 1920's. When they saw that America was becoming more and more advanced, and had more factories, their confidence grew so much they believed that all of America was prospering and would continue to do so. When in reality this was only true for a small part of the population, and prosperity would not continue.
So in conclusion we can say if half the population were in depression before the crash and this was because of the Governments overconfidence, then surely the Wall Street Crash was not the only cause of depression.
Another important long term factor is overproduction. This was made worse by inequality and people being "blinded" by the boom. I believe that once again overconfidence and government action are to blame. Overproduction started taking place during the late 1920's and it meant that once people had bought their radios, cars and household appliances, they did not need anymore. This meant that demand fell, as a result production fell. If there was less production not as many workers were needed so unemployment rose. Unemployment meant that people were unable to spend money on buying goods so demand fell, and so this vicious cycle of depression continued. Soon this led to factories closing down.
The fall in demand was a result of the unequal distribution of wealth. Although some Americans had bought the consumer goods and did not need any more. Many people could not afford to buy these goods not only because they did not have the money but because they did not even have electricity. As the government had not done anything to help the inequality, they can be indirectly blamed for the overproduction. This is because if they had helped the poor they may have been able to afford consumer goods and more factory workers might still have their jobs. Over production helped in causing the depression to begin well before the Wall Street Crash. It is a long term factor as it was taking place a long time before the crash but was recognised just before the Wall street Crash took place but by then people had started selling their shares which led to the Crash.
Another reason the government is blamed for overproduction is because of it's tariff policy, which led to the loss of it's export market. One way of selling surplus goods is to export to markets abroad. However, the government putting tariffs on goods abroad stopped them from doing so. This meant that Americans buying foreign goods had to pay extra as there was a tax. This was good for American industries in the short term as they would have more people buying their own goods. However, the foreign countries responded the same way and put tariffs on American goods. This meant that American businessmen found it difficult to sell their manufactures abroad. At a time when Americans needed a new market, the Tariff policy became a big failure as it made overproduction worse.
Soon, experienced investors realized that factories were not selling their goods and therefore not making as much profit so they started to sell their shares in these companies. Once people saw that others were selling their shares they wanted to sell their own too. Soon people were queuing up to sell their shares. This led to the Wall Street Crash. By selling shares their value had been reduced astonishingly. Without people investing in shares, companies had to shut down or reduce workforce.
Overproduction was the result of overconfidence of the Government. This is because the government put tariffs as they were confident that it would only help America and nothing would go wrong. They were much to confident to expect or prepare for a depression. However, this was not the case and it was a cause of overproduction. The businessmen and factory owners were confident they would always continue to sell goods so they were not prepare for what was to come. They could have prepared by for example; introducing better versions of what they had already sold; smaller radios. More advanced appliances etc.
As mentioned the loss of the export markets, was also a factor contributing to the depression via overproduction, it has already been explained that loss of export markets was the consequence of the government putting tariffs on goods from foreign countries but when other countries responded by doing the same thing, it meant that Americans could not sell their goods abroad, especially during overproduction when they really needed to. The government are to blame for this as although it seemed a good idea at the time it led to unemployment of workers as Americans could not sell their goods abroad nor could they sell them inside America so workers were let go. This eventually led to the depression.
Speaking of overconfidence, the overconfidence of the banks was also a very important factor in causing the depression. Their actions were foolish and irresponsible. They did not visualise the crash nor did they examine the customer's ability to repay the debt. They saw that more and more people were borrowing money to invest in shares. They realized that speculating was a great way to make quick money. Thinking that this would always continue they lent huge amounts of money for people to gamble away in shares. However, not only did the banks lend money to customers, they used customer savings that were in the banks for the stock market themselves. The Wall Street Crash led to both banks and customers becoming bankrupt. This was because people who had borrowed money could not pay it back as they had lost it as share prices dropped, and the banks who had used customer savings had lost all the customers money in shares and loans too, so even those innocent people who had not speculated lost all their savings as the banks were unable to pay them back so even the banks became bankrupt. Now nobody had money, so they sold their belongings. However, since everyone was poor and could not afford items they were being sold very cheaply. This led to people becoming homeless and finally the depression.
The action of the banks did play a major role in the Wall Street Crash but not so large in the depression as it was a short term cause and was not taking place for very long.
We have no one to blame for this but the banks themselves, they were so overconfident that they gambled other people's money and lost it in the stock market. They ignored the warning signs and behaved so irresponsibly that people lost everything they owned including their homes. Unfortunately, the banks irresponsibility was only bought out after the crash took place.
However, someone should have stopped the banks from making these decisions, it is obvious that the government sticking by the no-interference policy was a mistake, they should have stopped them from lending so much money, by maybe putting limits on money used for stocks, and maybe more importantly using customer savings to gamble in the stock market. But of course, their over-confidence prevented them from doing so as they were still blinded by the fact that America seemed to be prospering.
Blaming the banks for the depression may seem a way out of blaming the speculators themselves. If these people had not asked for money and become so greedy, the above events would not have taken place. The speculators who borrowed money from the banks should have been the responsible person too by realising that they were gambling huge amounts of money and they were not certain they would be able to pay it back. The speculators bought shares and watched them go up and continued to buy even more expecting them to continue rising. However, when experienced investors saw that companies were not selling as much goods ( due to overproduction) they began to sell their shares before values fell. Smaller investors saw that others were selling shares and followed suit. Soon prices were falling dramatically as the speculators began to sell increasing numbers of shares. So much so that on one day almost 13 million shares were sold. People sold their shares at whatever prices they could get, this meant that they were sold for much less then what they were bought for. This meant they could not pay their loans back resulting in bankruptcy of both the banks and the speculators.
Once again, the actions of the speculators played a part in the Wall Street Crash but not one in the Depression.
The Wall Street Crash was the result of speculators selling away their shares. The effect was as dramatic as the Crash itself. Americans lost all their money. Factories had to cut the workforce back to minimum. When the banks lost customers money they were not trusted thereafter, and people withdrew their money, so banks began to shut down. We could say the Wall Street Crash was a cause of the Depression as well, but my opinion is that the Wall Street Crash was the final effect of the problems mentioned. It is too short term to play a large part in such a big depression. Since half of America was already in a Depression the Wall Street Crash triggered the fall of the rest of America. The Wall Street Crash was only the final trigger in causing the Depression not the loading of the gun. Overconfidence of the government and people was the loading of the gun.
In conclusion, to answer the question " Did the Wall Street Crash cause the Depression" My answer would be " No!" it did not cause the Depression. The Wall Street Crash was the effect of the problems already occurring throughout America. The Wall Street Crash was the result of several long term problems in the US society and economy rather then the cause of depression. We can say this because many of the problems; action of the banks, action of the speculators all helped in causing the Wall Street Crash. However, other problems like social inequality and overproduction also played a very major part in the depression, this is because they were long term and had been taking place for a very long time already and a depression was inevitable. Maybe not as quick but just as severe.
So if blaming the Wall Street Crash for the Depression is too simplistic, then who is to blame? In my opinion, the overconfidence of the government and even the Americans themselves are to blame, this is because all the causes mentioned above can be linked back to the government as I have already done.
The long term factors were the most important and contributed the most in causing the depression. The Wall Street Crash on the other hand was just a small part of a Depression which already existed (as explained because of social inequality)
The Wall Street Crash forced the Americans into finally seeing what was already there. The Government could have done many things to prevent the Depression but their confidence was too high, and also their no-interference policy led to Americans making decisions which the government could have prevented. They did not do this because they had too much confidence that America would always prosper and good times would be there to stay.