During the 1920’s, the American stock exchange had undergone what can only be described as a ‘boom’. Huge post war expansion had taken place and America’s economy was extremely healthy, homelessness had been reduced significantly and financial stability for most of the population had reached an all time high. This newfound wealth created a time where the ordinary working class people would find themselves being capable of buying washing machines, cars, radios, fashionable new clothes and vacuum cleaners, things thing which had previously been beyond their reach.
Many people lived far more comfortably than ever before and prosperity had spread through much of America like an epidemic. New companies were springing up everywhere and the older companies were growing larger still. Indeed the US was really the best place you could have hoped to live in during the nineteen- twenties. Quite possibly the best example of this was Henry Ford’s Motor Company, who while they could, paid good wages and made a lot of profits themselves.
They were the first large company to adopt a new loaning plan to its employees that let them buy a motor car for themselves, provided they take the cost of the car out of their salaries in the long run. Now even the lower classes owned cars, a concept once ridiculous to the British upper classes, even for whom owning a car was a very exclusive luxury. Now it seemed that the number of cars owned by most people had reached the stage where one in three families owned most often, a Model T car.
This was because people thought that the cost of shares would simply continue to rise and that the good times could never end. Before the crash, people tended to refer to the mid nineteen-twenties as being the “Jazz Age”. But all was not as it seemed. The fact that 0. 1 percent of the population owned 34 percent of all the nations savings, and that 80 percent of the population had no savings at all, illustrated the instability of the economy despite people’s incredibly optimistic views. The mal-distribution of wealth in the country was astounding and it obviously could not have continued for long.
In the years from 1923-1929 the wages of the average manual worker increased by only 8 percent, whereas the production rate increased by and average of 32 percent. There were even those who set up businesses which did not actually produce any thing or fulfil the needs of any customer, but who set themselves up simply so that people would invest and therefore create profit for the frauds. One such example of this was Charles Ponzi who set up his “Old Colony foreign exchange Company”; by the end of his scheme he was making millions but was eventually caught by the Fraud Police.
Unfortunately the prosperity could not last and in 1929 disaster struck in the form of the Wall Street crash. And the money disappeared even quicker than it had come. The clichi?? d phrase of “what goes up must come down”, tragically did apply in this situation. And when the rate at which shares were increasing began to slow down, the word spread that the boom was over and soon people were franticly rushing to sell their shares for as cheap as they possibly could, bringing the value of the shares in which people had invested in down dramatically.
This confirmed the suspicions of so many stockbrokers who had predicted the crash ever since 1928. There were many reasons for the crash; the first mentioned will be speculation. Speculators were people who would make small investments in the stock market by buying percentages of shares (on margin), often using loans from banks or friends, they would keep a close eye on their shares which would hopefully grow in value. They would then receive money from dividends and they would then sell the shares as quickly as possible for a greater price than they first bought them for.
They would then pay back the money to the bank from which they had borrowed the money and would be left with healthy profit for themselves, so in the end, both them and the banks benefited as a result of the fairly easy and simple process. It seemed to these people that the stock market was the easy, fast way of getting rich. Buying on margin was seen as being reasonably safe at that point because people foolishly believed that share prices would keep rising. In 1920 there had been as little as 4 million shareowners in the U. S. and by 1929 there was a total of 20 million investors in the stock market.
And indeed for a time it worked very well with only some minor glitches in the economic status of the country, as the cost of shares gradually increased. By 1928 some share prices had raised by as much as three times over. This was largely due to the way in which the newspapers depicted the stock market as very simply being a fast and easy way of making money and that there was very little risk involved. One example of this was a company named Union Carbide whose stock prices grew from 145 dollars to 413 dollars between March and September. This was known as the Jazz age.
A time when a barber or messenger boy who keep their eyes open for an opening in the stock market then buy on margin the share they had spotted, could become millionaires in a matter of months. This to me seems much like today’s E-commerce businesses where many young, enterprising but not particularly well off people seem to be making a very large amount of money in a very short amount of time, simply by finding a gap in the market and exploiting it for all the they money possibly can. And yet now, as expected by most business advisers and stock brokers the market of Internet business has taken a down turn.
John J. Rascob, ex-director of general motors and now the chairman of the Democratic Party was heard to have said ‘everyone ought to be rich’. This was the general conceited, and yet ignorant attitude of the time amongst most middle and upper class people and especially amongst the newly rich population who seemingly believed that the happy years could never stop. Unfortunately the speculators did not realise that the real secret to doing well in the stock market was to stay in the market, to persevere with the shares and keep faith with their investments even when times were difficult.
Of course the speculators were the first to back out of the market. And in 1929, the banks that had invested a total of 9 billion dollars, lost most of the money they had invested to the collapsed stock market. Those who maintained their shares until the ultimate crash of the market and who had invested everything lost everything. The vital ingredient that was missing was confidence in the success of their shares. Another factor that contributed to the collapse was the over production of the companies in the stock market.
The problem was that the companies were spending money on producing large amounts of stock, but because of a lack of customers, were not selling all of their produce, and they were therefore losing their investors money. This was partly because the middle classes were still the main consumers of these sorts of goods, despite the fact that wages were up and that people could buy on credit. It was also because of the fact that exports were expensive due to British tariffs. One such industry that was overproducing was that of the farmers.
The problem was that with their new combine harvesters and more efficient machinery they found themselves managing, in some cases to produce two sets of harvest. They then suffered after having enjoyed success during and just after the war because they found the costs of their produce going down as farmers fought to offer the cheapest prices they could to keep themselves selling to the city dwellers who now led far more lucrative life styles than the workers of the rural areas. The construction industry had been showing signs of depletion since 1926, and had gradually been getting worse for most of the decade.
Unfortunately, the construction industry had employed a very large work force, mostly because more and more people were starting their own businesses and there own family homes because there was more money available. Almost all the industries suffered as a result of European tariffs on their exports to the U. K. and the rest of Europe. The European tariffs had been laid down in retaliation and defence to the American Tariffs on their exports to America. The reluctance between the two groups to trade with each other after that had caused a down turn for most of the businesses in the number of people they could sell to.
These taxes were known as the Fordney- McCumby taxes. It was America’s unrealistic wish to sell and make profit from the people of the UK and the rest of Europe but not to let them sell and make profit from America which caused the taxes essentially to be introduced. So, in conclusion there were very large and yet subtle problems with the American economy but which the people were not able to notice and respond to in time. During the day of Thursday 24th 1929 13 million were sold and on Tuesday the 29th 16 and a half million shares were sold for a total price of 10 million dollars.
This was a pathetic sum compared to what was supposed to have been in the market. What were the causes of the great Depression? The Wall Street crash was fundamentally the factor which caused the beginning of the great depression in the US. This awesome economical slump did occur as a very direct result of the crash and was responsible for the initial loss of value in shares and company. The depression did not begin immediately after the wall street crash. It took a time for the economic mishap to escalate into the most incredibly unhappy time experienced by the population as whole for the entire century.
The first effect of the crash was that several panics were triggered amongst banks in 1932. The fact that banks seemed to be in upheaval and chaos about the situation in the stock market made people lose faith in their banks. People started to fear for the well faire of their money and so they started to withdraw their money from their bank accounts. They did so in trust of good, hard currency. They believed that they would soon not be able to withdraw their money because of the bankruptcy of their banks.
This in turn did not stop the banks from going bankrupt anyway and soon many were out of business. This lead to many financial institutions being shut down and many people to stop depositing their money which made the situation of the banks even worse. Without many of the banks, the whole financial situation in much of the country was instable and organisation of businesses was reduced severely. The crash however was not the only factor involved in the depression but was simply the beginning of the end for many businesses and even some people’s livelihoods.
The amount of money the country made (gross national product) fell dramatically during the 30’s. In one year the GNP fell by 9. 4 percent and the rate of unemployment had grown from 3. 2 percent to 8. 7 percent. This was a very large loss considering it had only occurred in one year. This was just the start of the heavy economical troubles though as there were still a large number of losses to be sustained. Throughout the 1930’s the depression took its toll upon the people of America. The price of their foreign trade dropped from an astounding 9 billion to 3 billion dollars.
This was largely down to the tariffs that had been placed on American goods by the Europeans that had been retained despite America’s financial difficulties. The fact that there was no longer a European export sales market to turn to in times when the American public could not buy enough goods to keep many businesses alive because they had to either lower their production levels which obviously include sacking many workers and adding to the number of unemployed in the country, or they could risk over production and would probably end up going out business.
Most were not willing to take this risk and in the year of 1932 the unemployment level had dropped to a level of 40 million out of a population of 140 million people. Much of the economic trouble arose as a result of the troubles, which the farmers had endured over the previous decade as well as the greater, more recent troubles following the Wall Street crash. They had been suffering gradually worse during the time before the Wall Street crash, even during the years of supposedly universal happiness.
The years when the European farmers were largely incapable of producing their own agricultural goods due to the devastation of many of the fields during the war by trench digging and because of the amount of lead sown into the ground from bullets and missiles. At this stage they were quite willing to buy the American products for very large prices. When this time had passed it meant that the Europeans were no longer dependant upon American goods as their agriculture rapidly recovered with the aid of German reparations.
The other factor in the demise of European exports was the tariffs applied to American goods being brought to be sold in the European market. The tariffs arose in retaliation to the Americans applying the same tariffs to European goods entering the American market. When this time passed it meant that the farmers still had a very large production rate, but no body to sell their products to. Obviously this caused a lack of profit and a lot of poverty in the countryside.
During the post World War 1 farming boom their lands had expanded because the government had encouraged them to buy more lands and to modernise their methods. What further contributed to the farmers’ was the fact that many of their farms especially in the Arizona area had been turned into “Dust bowl farms”. This meant that the modern farming procedures and technology which sped up the farming process had drained the soil and reduced the fertile, lush ground to being baron wasteland where nothing could be grown well.
Though small attempts were made in 1923 to help the farmers’ situation, but these were not particularly helpful, as the government seemed to be more concerned with the welfare of the newer, more active businesses such as the automobile industry which at this stage was creating more money. They did not appreciate the fact that the agricultural industry would be an ever-reliant source of business. Because of the fact that though the people can reach a stage where they do not and will not need a new washing machine, car or radio, they will never stop needing food produced by the farms.
This was why it would have been a very good idea for the American government to have stepped in and done something about steering the farming businesses off the path towards recession. When the thirties came they were already in debt and so it was even harder for them to repay their debts as they were making very little profits out of their businesses. The troubles in agriculture were definitely a major long-term cause of the depression because the farmers made up a very large proportion of the population and the economy.
The farming business remained this way for two decades, so effectively the depression started for the farmers not by the Wall Street crash but by ten years early when their trouble started. Another problem, which the Americans were faced with, was that the distribution of international wealth was very uneven. While the 20’s had been a time of pleasure and financial gain for the Americans, they had been a time of relative hardship in much of Europe because countries were finding it hard recovering from the war.
During the war America had lent its allies 7 billion dollars and then another 3. 3 billion during the 20’s. These Europeans were buying American goods using American money. 90 percent the loans made were used to buy US goods. The Europeans still were in no position to pay back the money they had been leant. Countries such as Germany who had been lent money under the Dawes plan were not willing to repay America. The result of this was that America lost vast amounts of money. America’s money lending continued during the 1920’s with 900 million in 1924, and anther 1. 5 billion in 1927.
America had entered the war with admirable intentions, but now it wanted its money back at a time when it was essential to the well being of the American people. In my opinion, the main mistakes which the Americans made in the years between the years of the war and the Wall Street crash were that they tried to be the producer for the whole of the world. It seems as though they believed that they could sell their cars and other such technologies as well as their food produce, but not expect to buy from other countries as well.
In this way they caused financial hostility in the form of tariffs which were the source of so many of their problems. They also put too much of their money into singular industries such as the auto-mobile and the radio, this of course left the country’s market open to disaster if these businesses took a blow as they did. The Americans were reliant upon the business opportunities supplied by the European community, while they were reliant upon the loans from America to buy American products, and America, who at this stage could not afford to supply loans Europe, and who could not afford to pay back their loans.
The whole commotion caused an inevitable down turn in the American stock-market, and to quote Mr. Mark Peel, “When America sneezes, the whole world catches a cold. ” Through alienation of other nations through their Republican Laiser faire regime they neglected global wealth and concentrated only upon their own, they did not appreciate that if the country lost its exports, it would be heading very briskly for trouble.
The fact that the government left the businesses to their own design may have helped the economy to begin with but in the end, the government should have and could have intervened to stop the demise of the American stock market. I believe they were careless in their decisions to lend the amount of money they did to the European countries and to allow them to purchase so much of their own produce back from them.