What were the causes of the Wall Street Crash
The Wall Street Crash was caused by both long and short term causes which led to the crash and maybe the day of the biggest financial loss ever. The huge bust in the market started as people were speculating that shares would go up and they would make huge profits. However it got to a stage where companies were over producing and started having to sell at lower prices meaning less profits and less economical growth, when experts realised that companies weren’t doing that well and the market was going to crash.
All together there were five key factors leading to the bust. The first factor was Overproduction in the American Industry. With the invention of machinery the companies were able to produce more at the same rate, also they produced a lot of household consumer goods such as fridges. These items firstly didn’t come cheap and cost quite a lot of money so the poor couldn’t afford them and also the fact that households didn’t need more than 1 or 2 of these goods so all the excessive amounts produced were unable to sell.
They tried selling abroad but just like the Americans put high tariffs on goods from other countries, to help their home companies, got the same back meaning their goods weren’t able to sell abroad either. As a final resort in having to sell the goods they had to sell them at cheap prices, which people would consider buying and also many poor people could also purchase them then. As a result of selling for cheap the profits reduced enormously, meaning the company wasn’t making as much money and therefore wasn’t doing as well.
When a company isn’t doing as well the company’s value falls and therefore their stock values fall as well. Overproduction led to another factor which also led to the bust was that the wealth of the 1920s was not evenly distribute, meaning their were a lot of poor Americans. Poor people included people such as farmers, who also had lots of high production and therefore made less profits as they couldn’t sell the goods for a high price due to competition and more of a product meaning their was less demand so the prices had to drop which led to them making less profit and getting little for what they were doing.
Old industry workers were also effected as the need to coal was less with the invention of cars which ran on petrol, so companies sold less meaning they made less profits, so they sacked some staff and the ones that were left were on low pay as the companies couldn’t afford to pay them as much. New immigrants, who just came into America to live the “American Dream”, were used as cheap labourers as they were prepared to do anything to get a job.
The Black community were also discriminated against in America as they were seen as non-whites meaning they don’t deserve the same rights as the whites, many lived in poverty, they were given very low paid jobs and many of them were given to ladies who used to work in rich class white people’s houses as servants and a majority of males were tenants on farms, meaning they had to pay their landlords money in the form of goods produced, meaning they didn’t have much left and didn’t make much money.
As a result of the overproduction and poor people companies tried selling their goods in other countries however, their was a restricted market for US goods in other countries, so all the money they would be able to make was in the US of which they couldn’t make due to the huge amounts they produced which wasn’t needed.
They tried selling their goods abroad mainly to European countries, however when European countries tried selling their goods in the States they put high tariffs on them that people would be put off buying them, as a result of this America was punished equally by the European countries when they went to try and sell their goods. Also countries also owed the USA huge amounts of money in war loans and were struggling to pay them back.
With the number American people being poor, and the American economy at a very high, people started speculating and thought that companies prices would go up and then they could sell for a huge profit, lots and lots of people started buying shares, even the poor, as a result of this due to more people buying shares the prices stayed up and went up. Stock-brokers offered loans to buy shares and then repay later so that made more people come into the business of speculating and selling shares.
People didn’t think what if the business stops performing as well and also what if everyone sells what would happen, just like the prices shot up they could shoot down. The expert’s realised companies were underperforming but the market was just staying up due to speculation they gave everyone a warning to sell before it was to late and they lost all their money.
This led to people panic selling, as the big names, and the experts started selling huge amounts of stocks, prices steadily started to fall, and the banks realised that shares were going down, they tried to save the market by buying the shares at higher prices, they did that the first time but then people realised the danger and started selling following what the top investors were doing, then nobody was prepared to buy the shares which were sold so the prices started falling and falling very heavily and on the last day alone over 16million shares were sold and this time the banks were unable to save it, meaning people lost lots and lots of money, the poor became poorer, and many big investors lost a huge amounts of their assets. Many companies went bust as a result.
In conclusion I think that all these factors led to the bust, but most importantly I believe that the overproduction was the main factor, as that caused the prices to drop as the amounts produced weren’t needed, which meant companies had to sack people meaning more unemployed and without money, and therefore with companies making less profits, it affected the economy and also the company’s value would go down meaning their value on the stock market would also fall. If it wasn’t for the overproduction the prices wouldn’t have dropped at this rate on the stock market.