However, what happened in 1929 was that people started thinking the prices might stop rising. In 1929, all of a sudden people started selling the stocks, as they lost confidence in price rising. Because speculators really didn’t have enough money to keep the shares for a long period, as the price went down they panicked and tried to sell them as soon as possible. The price of US Steel fell from $292 on 3rd Sept 1929 to $22 on 13th November 1929. According to the New York Times on 24 October 1929 about 2,600,000 shares were sold in the final hour in record decline. This collapse of the stock market gave a lot of shocks to the states.
In 1920s, because of the economic boom it was much easier to borrow money from banks without much of one’s personal information. This was because the banks were sure that people could pay it back after the speculation easily. They did not think about what would happen when the value of shares started to decrease. However when the price of stocks went down people could not pay the money back to the bank. Banks over-lent the money. Because of all the loans they had were too much, banks had to close down. About 1352 banks collapsed in 1930, and even more in 1931, about 2294 banks. This is how the Wall Street Crash affected even people who were not involved in Stock Market. All the money they saved was gone due to the bankrupt. Also now credits in stores were cut down. Now it became harder to buy goods if you did not have money with you. It obviously made the economy to go worse and worse again.
Little government’s regulations due to their attitude ‘laissez-faire’, meaning that the government should interfere as little as possible in people’s daily life, were another aspect that caused the Wall Street Crash. Obviously, for the first thing they should have stopped people from speculating. Their attitude led the USA economy to collapse in this degree. They did not try to regulate the speculation or banks from lending too much money. Another government policy, tariffs, also helped the crash. Putting taxations on imports meant the competition between the American companies would be encouraged, yet at the same time it meant other countries would do the same thing to the US exports. Therefore only few US goods were sold outside of country.
The fact not many US goods were exported was one of causes for overproduction. As the technology developed, American firms could make many goods in a short amount of time. It increased the efficiency per man-hour by over 40 per cent. Although commodities were sold very well at first, there is a limited number of them each person wants. By 1929 everyone who could afford the consumer goods already bought them. The lower class should have earned more money to consume these, yet the worker’s income in the 1920s did not rise with his/her productivity and still couldn’t afford the goods. Moreover, as people lost all their money from speculation and bankrupt, now they did not have money to spend. It meant supply exceeded demand, and there were too many goods in the states that people did not like to buy.
Republican policies usually benefited the rich. For example, low taxation helped the wealth much more than the poor as they could use the money to reinvest in their business, while the poor could use it only to consume American goods. Also the allowance of the development of trusts helped the businessmen to earn more money. Basically, the policies made the rich much richer, and it brought out a poor income distribution. It means that the difference of the amount of income between the rich and the poor is huge. The state of a country cannot be stable in this case as all the money in the economy is owned by the rich, not equally. In 1925, 32%of the whole income went to the richest 5% while only 10% went to the poorest 42%- and the difference became bigger and bigger.
Especially farmers suffered a lot, even during the economic boom and more in 1929. As people demanded less as shown above, they firstly consumed less of the products that they buy the most- food. There was a massive fall in food price as people did not buy it. Farmers could not sell their products as it would not profit them. The best choice for them was to just leave their crops or burn the land. None of selling, such as crops or sheep, was worth selling.
Many historians agree that ‘overconfidence’ was the key ingredient to the Wall Street Crash in October 1929. There was not much change occurred during 1920s- it was just that people believed that the economy was going well, and then they suddenly realised it was not. It brought these horrible phenomena, such as bankrupt. The government policies also caused the Wall Street Crash slowly, although at the beginning of 1920s it was thought to be a good idea.
