DEPTH: 3 What were the causes and consequences of the Wall Street Crash? Flashcards
What did President Hoover say about poverty after his landslide election win in 1928?
‘We in America today are nearer to the final triumph over poverty than ever before… The poor man is vanishing from among us.’
What are shares?
Units of ownership of a company that can be bought and sold on the stock market
How can a shareholder make money?
By receiving a dividend (a proportion of company profit) or by selling their shares
Where was the main American stock market located?
Wall Street, New York
Who are speculators?
People who buy and sell shares simply in order to make quick profits
What was buying shares ‘on the margin’?
A form of gambling on the stock market. Speculators borrowed money from banks (up to 90% of the share price!) to buy shares, sold them when the price had risen, repaid the loans and made a quick profit.
How much did American banks lend for speculating in 1929?
$9 billion ($6 in every $10 loaned by banks)
When was the Wall Street Crash?
September and October 1929. The worst days were 24th October ‘Black Thursday’ and 29th October ‘Black Monday’.
What weaknesses in the US economy were the 5 main causes of the Wall Street Crash?
1) The action of speculators
2) Overproduction
3) Limited Exports
4) Signs of an economic slow-down
5) Uneven income distribution
What signs were there of an economic slow-down in the late 1920s?
- Struggling traditional industries: farming, coal, textile
- Fall in construction from 1926
- Workers wages stopped increasing
- Warehouses were filled up with stock
How far did the Dow Jones Index (stock performance of 30 large companies) fall between September 1929 and July 1932?
339.95 (a 89.19 % loss)
What was the problem with overproduction?
Industry was producing more consumer goods than there were customers to buy them. Many Americans who could afford the new consumer good now had them. Increasing stocks in warehouses made investors nervous.
Why did the US economy struggle with exports?
- European customers were poor and still recovering from WWI
- Reciprocal tariffs were set up on US goods entering other countries which made it difficult for American exporters
Why did the uneven distribution of income in the US economy help cause the Wall Street Crash?
- 60% of Americans were too poor to take part in the consumer boom of the 1920s
- Low wages and unemployment at 5% reduced the market
- The richest 5% had 33% of total income in 1929 which limited mass consumption
What impact did the Crash and falling demand for American goods have on the economy?
Businesses and banks failed; businesses cut production and expansion, sacked workers and reduced wages; further fall in demand for goods; confidence collapsed and spread around the world.
