The Wall Street Crash and the Great Depression
The Wall Street Crash and the Great Depression
On 24 October 1929 — known as Black Thursday — panic selling on the New York Stock Exchange triggered the most devastating financial crisis in American history. Within days, billions of dollars were wiped off share values, and the USA plunged into the Great Depression, the worst economic downturn the modern world had ever seen.
Causes of the Wall Street Crash
The Crash did not have a single cause — it was the result of several interconnected problems that had been building throughout the 1920s:
- Overproduction — American factories and farms were producing more goods than people could buy. By the late 1920s, warehouses were filling up with unsold goods.
- Unequal distribution of wealth — The richest 5% of Americans earned 33% of all income. Ordinary workers did not earn enough to buy all the goods being produced. The boom had made the rich richer, but wages for most workers had not risen significantly.
- Credit and debt — Millions of Americans had bought goods on hire purchase (credit). They owed money they might not be able to repay if the economy slowed.
- Speculation on the stock market — During the 1920s, millions of Americans bought shares, often using borrowed money ("buying on the margin"). Share prices rose far beyond the real value of the companies they represented. By 1929, the market was a speculative bubble.
- Weak banking system — There were thousands of small, independent banks with limited reserves. If customers withdrew their savings, banks could collapse.
- Republican policies — The government's laissez-faire approach meant there was no regulation of the stock market and no safety net for ordinary people.
The Crash — What Happened?
| Date | Event |
|---|---|
| 24 October 1929 (Black Thursday) | Panic selling began; 13 million shares were traded |
| 29 October 1929 (Black Tuesday) | 16 million shares were dumped; prices collapsed completely |
| By mid-November 1929 | Share values had fallen by $30 billion — more than the entire cost of WWI to America |
- Investors who had bought shares on credit were ruined.
- Banks that had lent money to speculators could not get it back.
- Banks began to fail — between 1929 and 1933, over 5,000 banks collapsed, wiping out the savings of 9 million Americans.
The Great Depression
The Crash triggered a catastrophic economic depression that lasted throughout the 1930s:
- Unemployment — By 1933, 13 million Americans (25% of the workforce) were unemployed. In some cities, the rate was over 50%.
- Homelessness — Thousands lost their homes and built shacks from scrap materials in shanty towns called Hoovervilles (named mockingly after President Hoover). "Hoover blankets" were newspapers used for warmth.
- Farming crisis — Farm prices collapsed further. The Dust Bowl (severe droughts and soil erosion across the Great Plains, 1930-36) devastated farming communities. Hundreds of thousands of families, especially "Okies" from Oklahoma, migrated west to California in search of work.
- Hunger — Breadlines and soup kitchens appeared in every city. By 1932, over 20 million Americans were going hungry.
- Social impact — Suicide rates rose; family breakdowns increased; birth rates fell. Americans lost faith in the economic system and in their government.
President Hoover's Response
President Herbert Hoover (1929-33) believed in rugged individualism — the idea that Americans should help themselves rather than relying on government. His response was widely seen as inadequate:
- He insisted the Depression would end naturally and that "prosperity is just around the corner."
- He opposed direct federal relief (handouts) to the unemployed, believing it would destroy self-reliance.
- He did take some action: the Reconstruction Finance Corporation (1932) lent money to banks and businesses; the Hawley-Smoot Tariff (1930) raised import duties, but this backfired as other countries retaliated, reducing world trade.
- The Bonus Army incident (June 1932) — 20,000 WWI veterans marched on Washington demanding early payment of a bonus due in 1945. Hoover sent in the army (under General MacArthur), which used tanks and tear gas to clear the camps. This shocked the nation and destroyed Hoover's reputation.
Key Exam Points
- The Crash was a trigger, not the sole cause of the Depression. The underlying weaknesses of the economy were already present.
- Be prepared to explain multiple causes and to evaluate which was most important.
- Compare Hoover's response with Roosevelt's New Deal — this is a common exam question.