1b: Causes of the Crash

Question 1

When was the Wall Street Crash?

Answer 1

October 1929

Question 2

What percentage of the USA’s stocks and shares did it handle?

Answer 2

61% - would have a knock on effect.

Question 3

Was the Crash unexpected?

Answer 3

NO!!!!!

Economic experts had been warning about it but the govt ignored them.

Question 4

What demonstrates the widespread effect of the Crash?

Answer 4

It affected MILLIONS, including those who didn’t even own stocks.

Question 5

Was the Crash the cause of the Depression?

Answer 5

No.

Rather, it demonstrated that the economy was in serious trouble.

Question 6

What showed that the boom was slowing down and that prosperity was coming to an end?

Answer 6

1 - Uneven distribution of wealth.
2 - Get rich quick schemes.
3 - Debt from use of credit.
4 - Undeveloped banking systems.

Question 7

Why was the banking system unable to cope with the crisis?

Answer 7

It was purely self-regulated and put its own self-interests over that of the nation’s.

Question 8

Why had the economy “overheated”?

Answer 8

Supply exceeded demand and the inability to export abroad due to tariffs and debts in Europe.

Question 9

Wall St Crash:

What led to the immediate crash?

Answer 9

There had been mass selling on the stock exchange on the 24th October. This led to more selling as brokers felt they would be left with worthless stock.

Question 10

Wall St Crash:

How many shares were sold?

Answer 10

16.4 million.

$30 billion of $100 billion was lost.

Question 11

Wall St Crash:

How does the fall in the radio share price show the extent of the crash’s damage?

Answer 11

September 1929: Share price = 101 points.

November 1929: Share price = 28 points.

Question 12

Economic problems in the 1920s:

What were some warning signs that the economy was struggling?

Answer 12

1 - Uneven distribution of wealth.
2 - Instability of get rich quick schemes.
3 - Stability of employment.
4 - Banking weaknesses.
5 - International debt.
6 - Overproduction.

Question 13

Economic problems in the 1920s: Uneven Distribution.

What was the difference in Northern and Southeastern per capita incomes?

Answer 13

1929:
North = $921
Southeast = $365

Question 14

Economic problems in the 1920s: Uneven Distribution.

Had everyone benefited from prosperity?

Answer 14

No.

Social groups, such as women and black Americans, did not benefit.

Question 15

Economic problems in the 1920s: Uneven Distribution.

How much worse was it for farmers?

Answer 15

South Carolina per capita income:
Non-agricultural sectors: $412
Farmers: $129

Question 16

Economic problems in the 1920s: Uneven Distribution.

Was this unequal distribution actually as wide as we think?

Answer 16

Yes.
The Brookings Institute found that wealth inequality was increasing as, by 1929, 60% of families had incomes of less than $2k a year.

Question 17

Economic problems in the 1920s: Stability of employment.

Why was employment often unstable?

Answer 17

Because of the fluctuating demand for goods.

Question 18

Economic problems in the 1920s: Stability of employment.

What was unemployment looking like in 1929?

Answer 18

Of the 165 families surveyed, 72% had been unemployed at some point, with 43% had been jobless for over a month.

Question 19

Economic problems in the 1920s: Stability of employment.

Why couldn’t workers look to the unions?

Answer 19

Because the Supreme Court and businesses would undermine them:
The Court had blocked attempts to ban child labour.
Employers had “yellow dog clauses”, not allowing workers to join unions.

Question 20

Economic problems in the 1920s: Stability of employment.

What was union membership looking like?

Answer 20

It had declined by 1 million from 4 million.

Question 21

Economic problems in the 1920s: Get rich quick.

Why was credit a drawback?

Answer 21

Many would invest hugely in speculative ventures, and then lose it all, riddled with debt.

Question 22

Economic problems in the 1920s: Get rich quick.

Who was Charles Ponzi?

Answer 22

A scammer.
He conned thousands into investing in his ventures, promising 50% profit within 90 days.
The judge criticised people for greed.

Question 23

Economic problems in the 1920s: Land speculation.

What was the Florida land boom?

Answer 23

Florida became an attractive place for people to retire and visit on vacation due to its sunshine.
The growth of the motor car enabled people to go there.

Question 24

Economic problems in the 1920s: Land speculation.

How did Florida’s population change between 1920-1925?

Answer 24

968k —–> 1.2 million.

This was because land was being sold to wealthy northerners.

Question 25

Economic problems in the 1920s: Land speculation.

What did people begin doing?

Answer 25

Investing in unseen projects, hoping to make a quick profit.
Usually paid on credit with a 10% deposit.
Success stories fuelled the boom - someone had bought land in 1900 for $25 and sold it for $150,000 in 1925.

Question 26

Economic problems in the 1920s: Land speculation.

Why could the boom not be sustained?

Answer 26

Demand tailed off in 1926, with more sellers than buyers due to scandals and the hurricane which killed 400 and left thousands homeless and bankrupt.

Question 27

Economic problems in the 1920s: Land speculation.

Did people learn from the Florida land boom?

Answer 27

NO.
1927-1929: People went Wall St crazy, buying shares and stocks on the margin with easy credit and loans from brokers - this was the bull market: lots of confidence, and lots of buying.

Question 28

Economic problems in the 1920s: Land speculation.

What was the main issue with the bull market?

Answer 28

People were investing on speculation, not to benefit companies.
If prices rose, they could sell and make profit.
It worked for a while as prices kept rising.

Question 29

Economic problems in the 1920s: Banking weaknesses.

What was the issue with the banking system (despite being created in 1913)?

Answer 29

By the 1920s, it was really outdated.

Twelve reserve banks with a Fed reserve board with 7 members.

Question 30

Economic problems in the 1920s: Banking weaknesses.

Why was the self-regulation a problem?

Answer 30

Reserve banks represented the interests of bankers and could not be relied upon.
Plus, their want for low interest rates to keep the market buoyant fuelled easy credit.

Question 31

Economic problems in the 1920s: Banking weaknesses.

What meant their was no safety net for people?

Answer 31

The lack of centralisation.
There were 30,000 banks, most of which were small and unable to cope with financial problems as they were not part of a centralised system.

Question 32

Economic problems in the 1920s: International debt.

What was the cycle?

Answer 32

America wanted Europe to pay back loans but they were unable to because the high tariffs in the USA meant Europeans couldn’t export goods to earn the income needed to pay back the loans.

Question 33

Economic problems in the 1920s: Overproduction.

What issue was America facing?

Answer 33

The boom could only be sustained if there was continuing consumption.
However, the USA could sell very little abroad due to tariffs and depressed economies. This meant the economy was slowing down.

Question 34

Economic problems in the 1920s: Overproduction.

What issues plagued small businesses?

Answer 34

The growth of huge corps squeezed small businesses out.
For every 4 successful, 3 failed.
The govt offered no help but to raise tariffs (which created other issues).

Question 35

Economic problems in the 1920s: Overproduction.

How does the construction industry demonstrate a slowing economy?

Answer 35

There was a decline in demand for materials and projects.

This meant greater unemployment and harmed other industries, such as cement and brick manufacture.

Question 36

Economic problems in the 1920s: Overproduction.

What was the issue with falling domestic demand?

Answer 36

Production outstripped demand - market flooded with unsold goods.
People stopped buying - unemployment as firms cut back production, this meant even fewer could spend.
1929: 80% living close to subsistence, even if in work.

Question 37

Economic problems in the 1920s: Overproduction.

What was the economy’s downward spiral?

Answer 37

Growth in industries slowed; employment fell.

Less income meant less demand which meant less production and then less employment - rinse and repeat.

Question 38

Economic problems in the 1920s: Overproduction.

Was the downward spiral recognised?

Answer 38

NO!

Problems were concealed by superficial optimism and stock market frenzy.

Question 39

Did credit help create wealth?

Answer 39

No, it was unstable for an economy to be based on this.