What were the causes of the Wall Street Crash? Flashcards
Uneven distribution of wealth
ncome distribution across regions of America was vastly different: Northeast (1929 this was $921) and Far West ($881) enjoyed the highest per capita incomes, but the Southeast was far lower ($412)
Industries such as agriculture did not experience prosperity
Social groups such as ethnic minorities and women did not experience opportunities and prosperity as much as big business
Patterns of employment could be unstable - sometimes under and unemployment
Stability of employment
Many families experienced periods of unemployment, particularly in 1929
This was a time with very little welfare and benefits
Labour Unions had very little influence, and many workers were not allowed to join them anyway. Union membership fell during the 1920s leaving workers without any legal protection and very little rights
The instability of “get-rich-quick” schemes
Easy credit was seen as a strength in the economy, but many Americans invested in speculative ventures and lost a lot of their money
This desire to get rich quick led to confidence tricksters and crooks
E.g. Charles Ponzi: a former vegetable seller who conned thousands of people out of their money by promising a 50% return on their investment in 90 days. He did not force people to invest, but took advantage of their greed.
Land speculation: The Florida Land Boom
- In the early 190s Florida was relatively underdeveloped, but the climate made it appealing for middle classes… led to the land boom
- 1920 population of the state was 968,000. By 1925 it was 1.2 million as people purchased new developments on the coast
- People began to invest in unseen and unbuilt developments based on glossy brochures (with the hope to then sell properties on at a profit). Often purchased on credit.
- Success stories fueled the boom as wealthy northerners rushed to invest money
- Demand began to trail off 1926 - there were scandals of made up property developments
- Hurricane 1926 left 150,000 homeless
- Hundreds were bankrupted leaving the land boom collapse and hundreds of unfinished properties
Stock-market speculation
Between 1926-1929 many Americans went Wall street Crazy as another get-rich-quick scheme opened up
Easy credit meant people could buy stocks and shares “on the margin” (only paying part of the price) - this demand to buy shares was the bull market
Increasingly people bought stocks and shares not to invest in a company but on speculation - when stock prices rose people would quickly sell making a quick profit
This worked for a while…
Weaknesses of banking system
It was outdated by 1920
Banks regulated themselves without government monitoring
Bankers could not be relied upon to act for the best interests of the nation, but for themselves
Most ordinary people’s money was invested in small local banks - these were unable to deal with financial problems
The cycle of international debt
America’s priority was for Europe to pay debt from WW1
Most European countries could not afford to do so
Tariffs made it worse - European countries could not trade their goods to America - it was too expensive
Therefore they could not make the money to repay USA
Overproduction and slow down in the economy
The boom depended on continued domestic consumption
Three signs the economy was slowing down:
Problems in small business: During the 1920s, for every four businesses that succeeded, three failed. It was a time for the big corporations to succeed
The construction industry: By 1926, the boom in demand for construction was tailing off. This led to unemployment and a series of knock effects to their suppliers eg brick manufacturers.
Falling domestic demand: The market was flooded with goods that could not be sold - people didn’t need or couldn’t afford any more goods. This then led to unemployment and low wages.
Downward spiral
With growth in new industries slowing, full-time employment fell and the economy went into downward spiral.
Fall in income led to fall in demand (buying), which led to fall in production, adding to unemployment.
These problems were concealed by the superficial optimism and the frenzy of stock market speculation.
