Why did wall street crash in 1929?
In 1929, there was a complete lack of confidence in the U.S.economy, leading to many, many investors selling their shares.This is known as the wall street crash.
This was caused by a number of short and long causes, of which I will elaborate on later.
Firstly, we must consider the old policy of tariffs in Europe. This is very important because of the fact that Europeans could not afford u.s. goods, as the tariffs for the buying of u.s. goods was too much for Europeans to pay. Another reason the Europeans could not afford to buy u.s. goods is because most European countries had hefty war loans they had to pay back to America, which they were struggling to pay back as it was.
There was widespread poverty in the u.s.a. in the 1920’s. almost 50% of American households had an average income of under $2000 p.a. this purchased only the bare essentials in life. The worst hit were the black people and new immigrants, who were highly discriminated against. Many black people lived in poverty in rural cities in america. New immigrants to america were given the lowest paid jobs, as Americans were highly prejudice against Europeans, plus they would work for anything just to live in america. With the collapse of trade unionism, there was little leeway for workers to bargain for better wages.
The two reasons previously mentioned, let to overproduction of goods in the u.s.a. as american citizens could not afford to buy any u.s. goods as they were in dreadful poverty. People overseas could not buy u.s. goods as it would be too expensive for Europeans as the u.s.a. had imposed tariffs which taxed the import/export of u.s. goods. The small amount of people that could afford the products had already bought exactly what they had wanted. There were too many goods, and not enough people to buy them.
In the early 1920’s, the american stock market was doing fantastically because of the boom in business created by the u.s. internal market. But, however in the mid-20’s the speculation of stocks began to increase. This is to say that people were investing in a company merely in the hope of share prices rising. As more and more people invested this way share prices rose out of all proportion to their real value.
Since the u.s.a. had set up its internal market it had been easy for americans to borrow money on credit. Small investors used this borrowed money to buy stocks(“on the margin”) small investors knew that if they lost this money they would not be able to pay this back. If the banks had not been paid back by the creditors, they would not have the money to loan to people trying to buy “on the margin”, and so many banks close.
In the autumn the experts of stock market began selling their stock as they could see that share prices were over valued. This panicked small investors, and they began selling madly. This lead to banks losing money from the loss of shares. This in turn lead to the collapse of the stock market. This is the wall street crash