The Wall Street Crash (AQA GCSE History): Revision Notes

The Wall Street Crash

What was the Wall Street Crash?

The Wall Street Crash occurred in October 1929 and marked the dramatic end of the economic prosperity known as the Roaring Twenties. This catastrophic stock market collapse became the starting point of what would develop into the Great Depression - a period when the American economy completely collapsed, leading to massive unemployment, severe difficulties in obtaining credit, dramatically reduced consumer spending, and a significant drop in goods production.

The crash represented a turning point in American history, transforming the optimistic, consumer-driven society of the 1920s into one struggling with economic hardship and uncertainty.

Background to the crash

The economic boom of the 1920s

During the 1920s, America experienced unprecedented economic growth and prosperity. This boom period was characterised by several key features that would later contribute to the crash:

Widespread speculation and investment: Millions of Americans had become involved in buying shares, often using borrowed money to finance their investments. This practice, known as buying on margin, allowed people to purchase more shares than they could actually afford.

Overproduction in key industries: By 1929, there was enormous demand for luxury items such as cars, radios, and refrigerators. However, manufacturers had produced more goods than could realistically be sold, creating a dangerous imbalance in the economy.

International trade problems: Foreign governments had imposed high taxes on American products, often as retaliation for America's own import taxes. This meant that American companies found it increasingly difficult to sell their excess goods in overseas markets.

The crash unfolds

Key dates and events

The collapse unfolded over several devastating days that would be remembered in economic history:

24 October 1929 - "Black Thursday": This date became known as Black Thursday when panic selling began in earnest. An unprecedented 13 million shares were sold on the New York Stock Exchange - five times the normal daily volume. Share prices began falling dramatically as investors lost confidence.

29 October 1929: The situation worsened when another 16 million shares were sold, further driving down prices and increasing panic among investors.

The devastating impact on share values

The collapse was swift and brutal. American shares lost billions of dollars in value, representing approximately 89% of their total worth. This meant that investors who had put their life savings into the stock market saw almost all of their money disappear virtually overnight.

As companies began to appear less profitable and their future prospects dimmed, more and more people rushed to sell their shares. This created a vicious cycle where falling prices led to more selling, which in turn caused prices to fall even further. Many investors were desperately trying to sell their shares before prices dropped completely, but found themselves unable to recover their initial investments.

Why the crash led to economic depression

The banking crisis

The Wall Street Crash had a devastating effect on America's banking system, which operated on a relatively simple model. Banks had two main functions: they accepted savings deposits from customers (paying them small amounts of interest) and made loans to other people (charging higher interest rates to make a profit).

However, many banks had invested heavily in the stock market themselves. When share prices collapsed, these banks faced enormous losses. The situation became critical when worried customers began withdrawing their savings in large numbers, fearing their money wasn't safe.

The bank run phenomenon: When people rushed to remove their savings, banks quickly ran out of available cash. Since banks had lent much of their money to other customers or invested it in shares, they couldn't immediately repay everyone who wanted their money back. This led to a cascade of bank failures.

Scale of bank failures: More than 600 banks closed their doors in 1929 alone. When a bank failed, everyone who had savings there lost everything - there was no government insurance to protect deposits in this era.

The wider economic consequences

The banking crisis triggered a series of interconnected economic problems that amplified the depression:

Mass unemployment: As banks failed and businesses closed due to lack of credit and reduced consumer spending, millions of Americans lost their jobs. Unemployment created a downward spiral - people without work had no money to spend on goods and services, which meant even more businesses failed and more jobs were lost.

Reduced lending: The surviving banks became extremely cautious about making new loans, fearing that borrowers wouldn't be able to repay them. This made it much harder for businesses to expand or even continue operating, and for individuals to make major purchases.

Consumer confidence collapse: The psychological impact was enormous. Americans who had experienced unprecedented prosperity suddenly faced economic uncertainty, leading them to cut back dramatically on spending and save whatever money they had left.

Timeline of key events

The following timeline shows how the crisis developed and spread:

• Throughout 1920s: Economic boom period with widespread speculation and overproduction
• 1929: Warning signs emerge as overproduction becomes apparent and foreign markets become less accessible
• 24 October 1929: "Black Thursday" - 13 million shares sold, panic selling begins
• 29 October 1929: Crisis deepens with 16 million shares sold
• Late 1929: Bank failures begin as institutions cannot meet withdrawal demands
• 1929-1930: Over 600 banks close, unemployment rises sharply, economic depression begins