In October 1929 the Wall Street stock market crashed, the American economy collapsed, and the USA was left in depression which destroyed much of the prosperity of the 1920s ‘golden period’. There are many reasons why the Wall Street crashed in 1929, for example, speculation, overproduction, trade and poverty, which were all weaknesses in the American Economy. During the 1920s, America was experiencing a boom. Speculation was a major activity to a lot of Americans. They brought and sold shares, trying to make as much profit as they could.
It seemed to most Americans that the stock market was a quick way to get rich. Anyone could buy shares; it didn’t even matter if you were poor except if things should go wrong and you couldn’t afford to pay back bank loans, because you didn’t even need to pay the full value of the shares. Instead, you could buy ‘on the margin’, meaning you only had to put forward a 10% deposit to buy the shares, and could borrow the rest by loans from banks. Americans would buy these shares, watch their value rise and then sell the shares at a later date at a higher price.
Many Americans decided to join the stock market because there was confidence in it. People were confident that prices would keep rising and that there would be more buyers than sellers. Through most of the 1920s the rise in share prices was quite steady. There were even some downturns, but in 1928 Speculation really took hold. Demand for shares was at an all-time-high and prices were rising at a un-heard-of rate, more than they were worth. People were becoming more and more confident in speculation because everyone was making such large profits, at that time.
The problem was, what would happen if confidence in the stock market fell and everyone sold at the same time. If people are confident that prices will keep rising, there will be more buyers than sellers, however if they think that the prices may stop rising, all of a sudden there will be more sellers than buyers and the whole structure will collapse. In Autumn, 1929, some experts worried about weaknesses in the US economy and inflated share prices, which sold heavily. Small investors panicked when they saw the fall in prices, which led to further fall in prices, and people ‘dumped’ shares.
Overproduction was another weakness in the US economy, which lead to the Wall Street crash. During the 1920s boom, most Americans had enough money to spend on consumer goods such as cars and electrical appliances. These consumer goods were easily made because of new production methods and mechanism, which meant that they could be made in mass production. However, more were being made than could be sold. Many Americans could not afford to buy the goods and those who could, had already brought them. Also, they could not be sold to other countries because they could not afford to buy US goods after the war.
Soon the market became saturated because too many goods were reaching the market with not enough people to buy them. This lead to the Wall Street crash because money had been spent on goods which could not be sold, therefore no profit could be made and companies lost a lot of money and had to sacrifice things like workers, leaving them unemployed. Poverty was another reason that the Wall Street crash occurred. Not everyone shared in the wealth of the 1920s. 50% of families in the USA could only just afford to live. Farmers, farm workers, new immigrants and blacks were some of these poor Americans.
Farmers and farm workers were poor because hardly anyone in the 1920s brought their products because instead they brought them from large industries and factories. New immigrants faced prejudice and were left with jobs with very low wages. Blacks were discriminated against and were in dire poverty especially in the south. Poverty helped the Wall Street Crash because many poor people in the USA has speculated on the margin by taking loans from banks however when it took a turn for the worst, they could not afford to pay back the loans. Also, they could not afford to buy the products that were being overproduced and needed to be sold.
Trade also helped the Wall Street to crash because the USA was unable to sell surplus goods to other countries, particularly Europe. Europe could not afford them because she was too poor after the war to afford them; she owed money to the USA already because of the loans she had taken for the war. Also, Europe could not make money from exporting goods to America because its tariffs were too high. During the 1920s America raised its tariffs because with all the industries, which had been built in the USA, they did not need imported goods from foreign countries.
Therefore Europe could not afford to ship its goods to the USA to sell. However, Europe raised its own tariffs to protect its industries and to make money from the ships exporting from America, which meant that when America tried to export all of their overproduced products to Europe, the tariffs were too high to make much of a profit. This therefore helped the Wall Street Crash to occur because other countries could not afford to buy US goods, nor could the USA afford to export many goods across Europe’s tariffs. There were many worrying economic effects of the Wall Street Crash.
The rich lost most because they had invested a lot. There was therefore a downturn in spending on goods. Companies failed and went bust because nobody was buying so trade fell because the poor couldn’t afford it and Europe’s tariffs were too high. Farming also fell because the cost of transporting animals was more than the cost of animals themselves. People therefore became unemployed because companies could not afford to pay them wages. Also, many people had borrowed money in order to buy shares that were now worthless.
They were unable to pay back the loans to the banks and insurance companies, so they went bankrupt. Some banks themselves also went bankrupt. Hoover cut taxes to help stimulate people to buy more goods, but confidence was lost. In 1929 banks failed and people stopped trusting in them. There was also the human cost of the depression caused by the crash. People in undeveloped areas were hardest hit by the Depression, because they had already been unprivileged during the 1920s. Huge numbers of farmers, new immigrants and blacks were unable to pay their mortgages.
To make things worse for farmers, over farming drought and poor conservation turned millions of acres into a dust bowl, which gave farmers little option but to leave their ‘desert’ lands. Unemployment was also a big problem. Because of overproduction, money had been spent on goods which could not be sold, therefore no profit could be made and companies lost a lot of money and had to sacrifice things like workers, leaving them unemployed. Most towns had so-called Hoovervilles. These were shantytowns of the migrants who were trying to find a place to work.
At night parks would be packed full of homeless and unemployed. Rubbish tips were crowded with people hoping to find a meal of scrapes of food from the leftovers of more fortunate Americans. Loads of people were rushed to hospital suffering from malnutrition and starvation because of the lack of food available to them. Unemployed workers, who had once contributed to the prosperity of the 1920s, were left queuing for cheap meals of bread and soup dished out by charity workers. For Americans who were used to prosperity and believing in self- help, needing charity must have been a hard blow to their pride.
It wasn’t just the fact that the Wall Street Crash had occurred and left people in poverty that was the problem. The point was that people had lost their dignity and self-respect. If things did ever get better and people got their jobs back, the golden period of the 1920s could never be repeated. The crash had destroyed the one thing that was crucial to the prosperity of the 1920s: confidence. The confidence there had once been in America and its economy had been lost and would probably never be found.