The United States 1919 - 1941, The Wall Street Crash

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Sana Siddiqui

11 OAT

The United States 1919 – 1941, The Wall Street Crash


Question 1

Between 1921 and 1929, for eight years, there was a major boom in the American economy. Business was prospering, sales increased, profits increased and the prices of shares rose. Ordinary Americans were investing money in the stock market (Wall Street), buying shares in companies which they hoped would make large profits. However, this all came to sudden halt with the Wall Street Crash in October 1929 and America fell into a serious economic depression. There were many causes of the Wall Street Crash that lead to the eventual depression such as the speculation, overproduction of goods, government policies, isolation, and the stock market.

Speculation is possibly one of the most significant causes of the Wall Street Crash. Many Americans assumed that the easiest way to make quick profit or get wealthy was by playing the stock market. In 1920 there were only 4 million share owner in America and by 1929, there were 20 million out of a total 120 million. In addition, 6000, 000 new investors were speculators who borrowed some money in order to buy some shares and then selling them as soon as the prices rose. They then pay back their loans but still have some profit left in the process. Speculation was a form of gambling in which they risked their own money. During the 1928, speculation became quite popular as the demand for more shares increased rapidly and prices began to rise significantly. For example, in March the shares were at $145 and by September they had risen to $413. One key factor that contributed to this whole speculation was confidence among people. As long as people were confident there would be more buyers and sellers which would keep the prices at an all time high. However if they began losing their confidence and hope, prices would stop increasing which would result in more sellers eventually leading to an economic crash. This is exactly what happened in America. Some shareholders began to lose confidence and believing that the prices of shares could not continue to rise forever, decided to sell. This hence triggered a panic and so many shares were sold during 24th October 1929 that by Tuesday 29th October the share prices continuously fell and in the process, people began losing vast amounts of money, creating bankruptcy. This is due to the fact that too many people thought that share prices could only go up, which encouraged them to invest more than they could afford in the stock market. And so when the crash occurred, they lost more money and were ruined.  Banks did not have enough money in reserve to help businesses that were in trouble. This was because they had lent too much money but now the banks were facing difficulties because people could not afford to repay their loans. Also it was because banks had speculated on the stock exchange, so when the market crashed the banks became bankrupt. As more people began to lose their trust, they started withdrawing all the money from the bank and kept them safe with themselves as they were afraid to buy any more goods. This meant that since no one was buying any goods, industries would not get any profits, and banks became bankrupt, leading to a cycle of depression as the situation got worse and worse. However this whole event was a short term cause of the Wall Street crash as it began quite late and affected the economy in a shorter period of time. This is how speculation contributed to the Wall Street Crash.

Although speculation is a major cause of the Wall Street Crash, it certainly isn’t the only one which led to this event. Overproduction of goods was also another key factor that helped cause the collapse of economy. This was also another short term cause as it wasn’t happening from a long time ago and only had an effect once it actually occurred at the time. The boom of the 1920s was based on selling more and more goods. But by 1929 US industry was running out of customers. By 1929, there was a growing surplus of manufactured goods being produced and mass production means supply is greater than the demand. The richest and wealthy part of the society had already bought what they needed and wanted which lead to oversaturation. Better off Americans could not go on spending forever, there was a limit to how many cars and fridges people would buy.  From 1900 to 1920, improved machinery such as improved fertilisers and harvesters made agriculture more efficient which then created unemployment for some farmers because if machines and technology can improve the farming, then farmers are no longer needed that much. As a result, it was producing surpluses of wheat and food than needed of which nobody wanted.  And so if the rich people have already consumed the goods they needed, this means there is no profit being made leading people undergoing debts and that leads to the banks going bankrupt.  The situation worsened as the US industry could not sell abroad because other countries had put up tariffs in retaliation to the USA as they had set tariffs before to protect their own industries. This in effect means that they could not sell their surplus food and were stuck with the overproduced food unable to make any profit. As many industries and big businesses depended heavily on trade and making profit, they were now more or less in trouble as the impact was tremendous. This thus as a result finally leads to the market crashing known as the Wall Street Crash. This furthermore shows that the speculation was not the only cause which leads to the inevitable economic collapse.

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There were many other economic weaknesses which were quite reasonably responsible for the Wall Street Crash. Government policies such as the Laissez Faire and ‘rugged individualism’ which was an approach in which the republicans believed that it would be best to interfere less in the everyday lives of the American citizens as in their view, the purpose of the president was to leave people alone so that they could become independent and to make them capable of finding jobs on their own without the support of the government. This, they thought, would make America rely less on the government ...

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