There was no single factor responsible for the sudden plummet in values on the US stock market, known as Wall Street. It was more a culmination of two or three major events or problems that built up over time, were not addressed so were able to nurture and course a fatal disaster for America in 1929. The American economy had been doing very well after a boom in 1920, thus the period was called the ‘Roaring Twenties’ giving an air of riotous fun loud music and wild enjoyment with ‘everyone’ having a good time because of all the money splashing around.
However, after so many years of good living and good business the US public had everything they wanted so they stopped. They stopped purchasing products, they stopped borrowing but above all they stopped purchasing shares. Shares were the main reason for so many people being fairly well off, because they went hand in hand with the “American Dream” or get rich quick philosophy of that time. Shares were an incredibly easy way to make a lot of money in a short space of time.
Shares begin with the birth of a new company – since one cannot begin without money the proprietors look for willing investors. Once found these people are given a ‘share’ in the company and become Shareholders. To get a return on their money invested they can either sell their shares or get a dividend on the profits made by the company. If the company does well, then the value of the shares will rise and Shareholder will get a better price for them if they choose to sell. Also, there were a fair amount of ‘Speculators’.
Speculation is a form of gambling where people borrowed an amount, bought some shares, waited for their value to increase then sold them off again, paid back there debts and were still left with a small profit to show for their efforts. They didn’t even have to pay the full price of the shares, they could buy ‘on margin’ where they only have to pay 10% of the share and can borrow the rest. Women became heavily involved in speculation. Female shareholders owned over 50% of the Pennsylvanian Railroad, which consequently became known as the ‘petticoat line’.
It wasn’t only individuals speculating, banks became caught up in the rush to make a lot of money, quickly. During the economic boom of the 1920s, investment on the stock market was very popular. As more and more shares became available more and more people bought them resulting in the number of shareholders going from 4million in 1920 to 20million in 1929, although only 1. 5million were big investors. Around 600,000 of the rest were speculators. Through most of the 1920s the rise in share prices was steady but in 1928 speculation really took hold and the prices rocketed.
With demand at an all time high and prices going through the roof it was inevitable that something was to happen that something was confidence. If people are confident that prices will continue to rise there will be more buyers than sellers, however if the confidence is not there and prices are expected to drop there will be more sellers than buyers. This is exactly what happened in 1929. The stock market was not entirely to blame. There were several weaknesses in the US economy.
Some industries were showing weaknesses as early as 1926, the construction industry being one of them. It had started its downturn over three years before the massive crash. Farming was in trouble all through the twenties along with coal, textile and other traditional trades. The uneven distribution of wealth and the worrying state of banks brought along concerns. 500 banks a year were failing in the decade before the crash, giving rise to severe concern for the welfare of peoples’ savings.
To compensate for these losses, companies tried high-pressure advertising, spending nearly i?? 3 billion on magazine advertisements. This did nothing unfortunately, with workers wages not rising and prices not falling demand kept decreasing. To relieve the stress on the US stock market, some of the excess products might have been exported to Europe but after so many years of American tariffs Europe had introduced its own meaning the industries would have had little return on their sales after paying the taxes and certainly not enough to stop the crash.
I think the factor most responsible for the Wall Street Crash is the stupidity of the American government at that time. If they had kept a closer eye on the state of the economy, the stock market and the general buying state of the US public they could have realised that a fall would be on the way and could have done something to stem it. Rather than being a stand off government, disaster could have been averted.