Why and with what consenquences did the US stock market crash in 1929

Topic: BusinessInternational Marketing
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Last updated: November 9, 2019

The Wall Street crash happened on 24th October 1929. It was a sudden dramatic fall in the value of shares on Wall Street which was the US stock market. There were many causes for the Wall Street crash. The first reason why the US stock market crashed in 1929 was the long term cause of over production.

This was where companies produced too much of their product. The 1920’s was based on making as much of a certain product as possible but by 1929 there no longer any need for this because the industries were running out of customers as people couldn’t go on spending forever.There would only be a certain amount of a certain product that you need. These are things such as fridges and cars. This meant that there was a surplus of manufactured goods. This was a cause of the Wall Street because it meant that companies had to get rid of their products and to do this they had to sell at discount prices. Therefore profits were much lower.

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The consequences were that share prices went down. The second long term cause why the US stock market crashed in 1929 was the fact that there was an uneven distribution of wealth in the US. I believe that this was the least important cause.In the 1920’s around 60% of Americans lived on the minimum needed for the basic necessities of life and around 33% of income was earned by 5% of the population.

The reason why this was a cause of the Wall Street crash was that the majority of Americans couldn’t afford to buy the consumer goods of the boom so much fewer people were buying the products so share prices went down. The third long term cause of why the US stock market crashed in 1929 was protectionism. This was the where, in the 1920’s, a tax was placed on all imports that were to be sold in America.It was thought that this would increase the sales of American goods which it did and this meant that foreigners couldn’t come in and steal all of the trade with cheaper products.

This meant that when times were good American companies really benefited but when times were bad after the Wall Street crash and the same American companies wanted to sell abroad, other countries put tariffs on their goods from America. This meant that they couldn’t sell goods in America because of the depression and they couldn’t sell abroad because of the tariffs so their share prices went down and people lost a lot of money.The final long term cause of the Wall Street crash was to do with credit and debt. The boom of the 1920’s was based on credit. This was a cause because in the 1920’s most people couldn’t afford to buy consumer goods on the spot so they borrowed money from the banks to pay for things. People even used credit to buy shares because everyone though that it was easy money and that share prices would carry on going up no matter what. So when the crash happened people lost a lot of money which they didn’t have.This meant that a lot of people were in debt which meant they couldn’t pay, so banks shut down which meant that the public lost even more money.

This was what really set off the depression and I believe that this was the most important cause. The only short term causes was speculation. This was the panic when the share prices began to drop.

Confidence dropped so people stopped buying shares until the 24th of October when selling began in earnest. Another big collapse took place on the 29th and share prices carried on dropping until 1932 where they eventually lost 80% of their value.Because of speculation the Wall Street crash caused the depression because everyone lost faith in the system. There were many consequences of the Wall Street crash. The first of these was that Wall Street led to an enormous loss of confidence in the American way. People all over the America were ruined as they had loaned more money than they could pay back and were now angry that they had been led to believe that the stock market was a sure thing and thought that if the stock market had crashed than anything else could happen next.This meant that people stopped spending money and the demand for goods fell so industry declined.

The first consequence of the Wall Street crash was banking. In the few years after the Wall Street crash around 5000 banks collapsed. This was disastrous as this meant that the savings of millions of Americans were just wiped out and that thousands of companies were destroyed because they couldn’t finance their debts. With all of the banks in ruins, no loans could be made so new companies couldn’t be started.

Finally manufactured goods fell by 80% because no one was buying anything. This meant that with no new investment and with the falling demand, hundreds of thousands of workers lost their jobs. This led to huge unemployment. The second consequence of the Wall Street crash was unemployment.

Because of the huge drop in the profits of companies after the Wall Street crash, employers could not longer afford to keep many of their workers. This meant that there was huge unemployment all over the country and by 1933 the unemployment level had hit 14 million.Also in America there was no state welfare so people lost all of their money and got no help from the government which meant that there was a huge amount of poverty all over the country. People lost their homes and all their possessions because they couldn’t afford to pay their mortgage or their hire purchase. This meant that there were many hoboes’ travelling around the country on freight trains looking for work and shanty towns became common on the outskirts of many American cities. Shanty towns were also known as Hoovervilles because people blamed the president Herbert Hoover for the Wall Street crash.The third major consequence of the Wall Street crash was the effect that it had on farming. Farming was the earliest industry to be hit by the depression.

Farmers had already been majorly hit by over-production after World War One which meant that they had to lower their prices and the depression meant that they had to further lower their prices. Many farmers were forced to leave due to being un-able to pay back loans and in the mid-west matter were made even worse. Over cropping the land had led to a dust bowl which was a severe drought causing harvests to fail and the soil just blew away.Many farmers in places such as Oklahoma had to leave and find work in places such as California.

As a result of all of the above consequences the American people looked to blame certain people and the blame was put on the government. The newly elected President of the time was Herbert Hoover. He came to power just before the Wall Street crash and before the crash happened he claimed that the economic boom would go on forever.

He used the words “A chicken in every pot, a car in every garage. ” He even claimed that poverty in America would be wiped out but these words rebounded on him.Hoover was a republican so he believed in the republican principals of rugged individualism or laissez faire. He believed that business was business so the government shouldn’t interfere because things would right themselves. This is why he did nothing at first when the industries started to go down. He also believed that the US government shouldn’t have to deal with the whole countries unemployment problems and that the local powers should deal with this. There appeared to be no way out of this situation and the government seemed no to care.

This was proved when President Hoover was interviewed in a magazine and he said ‘Nobody is actually starving’. I believe that this is why the public came down so hard on the government when the going got really tough. They used to say ‘in Hoover we trusted, now we are busted’. Finally, in 1930 Hoover decided to intervene by passing the Hawley-Smoot tariff where by higher taxes were put on imports but this had a backwards effect. This just made American exports even more difficult which made times even harder. In 1931 this was realised so he reduced taxes. His next move was to build the Colorado Dam.

This was a dam on the Colorado River which was there to try and irrigate the dried up fields to provide water and food to the people in that area who were starving. He also spent $4,000,000,000 to try and relieve poverty but it was too late. Also in 1932 Hoover set up the Reconstruction Finance Corporation. This meant that the government could loan money to the state governments to help rebuild communities but all of these things were too little too late. Hoover was very unpopular.

Another consequence of the Wall Street crash was the rejection of the bonus marchers.This was when 20,000 ex-soldiers from the First World War went to Washington to ask for immediate payment of their bonus. The bonus was a payment of $500 that had been promised by an act of 1924 which was due 1945. They camped outside the White House and Hoover refused to meet them and in August he ordered the army to come in and clear the bonus marchers out and this made the current Hoover even more unpopular. I conclude that on the 24th October 1929, Wall Street crashed and because the United States were not ready for this and because they thought that the boom would last forever, the consequences were devastating.

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