Wall St Crash

The Wall Street Crash

What was (is) Wall Street?

Wall Street the Financial District in New York City, where the financial markets of the United States are based. Wall Street, has been described as the world's principal financial centre.
The Wall Street area is home to the New York Stock Exchange, the world's largest stock exchange as well as the Federal Reserve Bank and many commercial banks and insurance companies. It is where most trading for stocks and shares took place.

What happened on October 29 19299

On Black Tuesday, 29 October, 16 million shares were sold on the stock market in Wall Street and the economy collapsed completely.
By 1930, America was in the Great Depression.

Why did this happen?
Overproduction and under consumption in agriculture

As farming techniques improved, farmers started producing more food. However, the demand for grain fell in America because of Prohibition and changes in tastes in food.
There was also less demand from Europeans for food from America because they were growing their own crops and there was a tariff war.
Overproduction led to falling prices.
Thousands of farmers fell into crippling debt, could not pay their mortgages and so became unemployed after having to sell their farms or being evicted. In 1924, 600,000 farmers lost their farms.
Sharecroppers in the south, who were mostly black Americans, were often evicted when the white-owned farms had financial problems.

Overproduction and underconsumption of consumer goods

By the end of the 1920s, there were too many consumer goods unsold in the USA.
Mass production methods led to supply outstripping demand.
People who could afford items, such as cars and household gadgets, had already purchased them. Also, people in agriculture and the traditional industries, who were on low wages, could not afford consumer goods.
This meant workers were laid off, which reduced demand for goods even further.

Decline in traditional industries

Coal mining, shipbuilding and railroads were either stagnant or in decline. Mechanisation also caused unemployment in these sectors.

Protectionism

America tried to sell its surplus goods in Europe. However, the Fordney-McCumber Tariff Act 1922 had led to European countries imposing tariffs on American goods.
This meant American goods were too expensive to buy in Europe and, as a result, there was not much trade between America and Europe.

Laissez-faire

The laissez-faire policy of the Presidents meant there were not enough safeguards in the economy, especially on the banks and the stock market.
Banks were not regulated.
There were very few large banks in America, but there was a huge number of small ones which were unstable and did not have the financial resources to cope with the rush for money when the Wall Street Crash happened.
Many banks had already closed even before the crash, leaving thousands of customers with no money at all.

Debt increasing

A lot of Americans bought goods on hire purchase. As a result, they owed money to shops and credit companies. Many of these businesses went into financial difficulties when people failed to pay their debts.
House prices increased a great deal in the early 1920s. However, after 1926, house prices fell leaving some Americans owning houses that were worth less money than what they had paid for them.

Speculation on the stock market

The government’s selling of war bonds during World War One meant ordinary people became attracted to investments.
Their interest continued in the 1920s, especially when they saw wealthy people making huge profits from buying and selling shares.
Many Americans who could ill-afford to lose money became caught up in this disastrous type of speculation.
Some people even bought shares “on the margin”, i.e. they borrowed money to buy shares and then held on to them until they were worth more than the debt.
Then they sold the shares, paid off the original debt and made a profit.
Low interest rates encouraged this practice.
Throughout most of the 1920s, people continued to buy shares on credit because they were making profits from them.
Between 1927 and 1929 there was a buying frenzy, pushing the value of shares up to unrealistic prices.
For example, radio shares increased from 94 cents in March 1928 to 505 cents in September 1929.
By 1929, over 20 million people had invested in shares.
Banks also became involved in speculation on the stock market.
They used savers’ money to invest in shares, and lent money to stockbrokers and speculators.
Thus, many groups in society were heavily dependent on the economy, and especially the stock market, remaining prosperous.

Speculation on land

People also made vast profits speculating on land, especially in Florida, and the price of land soared. However, land values collapsed in 1926 and so did investors’ finances.

Can we blame the President, Hoover for the crash?

When Herbert Hoover became President in 1929, people thought he would increase tariffs because he had promised to do this in the election campaign.
This boosted trading in shares on the stock market, which pushed prices up further. When the Senate blocked Hoover’s plans on tariffs people began selling their shares.
This meant prices started to drop sharply.

Loss of confidence in the price of shares

Experienced investors knew the American economy was slowing down and that shares were over-valued.
In September 1929, their lack of confidence in the price of shares meant they began selling them in large numbers. This caused prices to drop further.

Panic selling of shares, leading to the Wall Street Crash, 29 October 1929

By October, many more people started feeling nervous and panicked. They rushed to sell their shares.
On 24 October, Black Thursday, 12.8 million shares were sold. Prices plummeted and the stock market began to crumble.
On 29 October 1929, Black Tuesday, the collapse of the economy was complete.
16 million shares were sold at a fraction of their price.
Thousands of people saw their fortune invested in shares, or any money they had in the bank, disappear. Those who had bought “on the margin” were in great trouble.
The stock market in New York had now collapsed.