The Wall Street Crash of 1929 (Grade 11 NSC Matric History): Revision Notes

The Wall Street Crash of 1929

The Wall Street Crash of 1929 represents one of the most significant economic disasters in American history. This catastrophic event not only devastated the United States economy but also triggered a worldwide economic depression that lasted throughout the 1930s. Understanding both the causes and consequences of this crash is essential for grasping how capitalism can fail when left unregulated.

Key Question: What were the reasons for the 1929 Wall Street crash and what was its economic and social impact?

What caused the Wall Street crash?

The timeline of disaster

The New York Stock Exchange (NYSE), located on Wall Street, became the centre of America's financial collapse in October 1929. The crisis unfolded over several dramatic days that changed American society forever.

Thursday, 24 October 1929 marked the first warning signs of the coming disaster. On this day, share prices began dropping sharply, causing widespread panic selling among investors. An enormous 13 million shares were sold as people desperately tried to avoid losses. However, after this initial shock, the stock market appeared to stabilise for a few days, giving false hope to many investors.

The real catastrophe struck on Tuesday, 29 October 1929, which became known as "Black Tuesday". On this day, share prices crashed completely, destroying the wealth of millions of investors who found themselves unable to repay the loans they had taken to buy shares. Many people were forced to declare bankruptcy, marking the beginning of what would become the Great Depression.

How banks created the crisis

The banking system played a crucial role in causing the Wall Street Crash through irresponsible lending practices. Banks had been giving loans to people who could not actually afford to repay them, encouraging these borrowers to speculate on the stock market.

When the crash occurred, borrowers found themselves with no money to repay their loans. This created a devastating cycle: banks began repossessing homes from people who couldn't pay, leaving many families homeless. However, because the economy was declining rapidly, banks couldn't resell these repossessed houses, causing them to lose money.

To make matters worse, banks had been using their clients' savings to speculate on the stock market themselves. When the market collapsed, both the banks and their customers lost money, facing complete financial ruin together. This destroyed confidence in the banking system and accelerated the economic collapse.

Other contributing factors

Several deeper problems in American society made the crash much worse than it might otherwise have been:

Wealth inequality was a major underlying issue. Businesses had been keeping prices high and making huge profits whilst keeping workers' wages low. This created an uneven distribution of wealth and reduced people's spending power. Banks had hidden this economic imbalance by providing easy loans, but this only delayed the inevitable crisis.

Poor government policies also contributed significantly to the disaster. The government had reduced taxes for wealthy people, which encouraged more speculation rather than productive investment. There was a lack of government intervention in monopolies and high prices, and the government showed hostility towards labour unions, preventing workers from negotiating better wages through collective bargaining. Additionally, trade tariffs had the opposite effect to what was intended - instead of protecting American business, they stopped the flow of trade between the US and the rest of the world.

Agricultural decline after World War I created another serious problem. Once the high wartime demand for agricultural products ended, there was a surplus of produce that drove prices down. Many farmers were forced to abandon their farms, leaving agricultural workers unemployed and reducing rural purchasing power.

The economic and social impact of the crash

The Wall Street Crash triggered America's entry into the Great Depression, a period of severe economic downturn that had enormous consequences for both the economy and society.

Economic devastation

The United States was completely unprepared for such a major economic collapse. The lack of government action deepened the crisis significantly.

By March 1933, the economic statistics were truly devastating:

• Production output had dropped 30% below 1929 levels
• Prices had fallen by 25%
• National income had declined by a massive 50%

Small investors lost everything they owned, whilst big businesses, financiers, and bank managers who had lent money for speculation found themselves bankrupt. The banking crisis was particularly severe: 650 banks went bankrupt in 1929 alone, followed by 4,000 banks by 1933. These institutions were unable to recover what they had lost in the crash.

The economic collapse created a vicious downward spiral. Because businesses could no longer get loans to help them through the depression, many factories were forced to close down, putting the economy into further decline. As unemployment rose, people could no longer buy goods, which led to even more factories closing and more unemployment. The Republican government's opposition to social welfare made the situation worse, as local and federal authorities had no plans or budget to cope with mass unemployment.

The crisis also caused a decline in international trade. Exports dropped because of factory closures, resulting in loss of income for both US businesses and the government, which worsened the overall crisis.

Social suffering and hardship

The Great Depression caused immense social consequences that affected millions of ordinary Americans. Unemployment became a major source of misery - for the vast majority of unemployed people, there were no government aid schemes to help them survive.

Homelessness became widespread as unemployed people could not meet rent or mortgage payments. Many families were forced to sleep in parks, subways, and improvised settlements on the edges of cities called "shantytowns". These were constructed from tin, sacking, and materials scavenged from rubbish dumps. People mockingly called them "Hoovervilles" after President Hoover, who they blamed for the crisis. Residents of these settlements survived on food from dustbins, charity shops, or breadlines.

Social unrest began to emerge as desperation grew. Food riots broke out in small towns like Henryetta in Oklahoma and England in Arkansas, where people threatened relief agencies and food shops. The Bonus Marchers - a small group of World War I veterans and their families - demanded payment of post-war bonuses promised by the government, but protesters were violently dispersed by the army.

The scale of unemployment was staggering. In some areas, one quarter of people were unemployed, with the same number under-employed. Relief payments averaged only $7 to$8 per week, which was insufficient for survival. Malnutrition and anaemia became common due to lack of food.

Families were torn apart by the crisis. Men went to men's shelters, women to women's shelters, and children were placed in orphanages. The stress and desperation led to rising suicide rates across the country.

Government failure and social attitudes

Poverty carried a social stigma of laziness and dishonesty, which made the situation even more difficult for those affected. The authorities initially considered relatives to be the first source of aid for struggling families. People could only apply for government help when they were completely destitute.

At first, all aid was organised by private charities and individuals. Only when these private organisations ran out of funds were states forced to take on some responsibility for helping the unemployed and poor.

The government's response was inadequate and too late. Few public leaders initially acknowledged the severity of the crisis. President Hoover encouraged the public to keep up hope but eventually introduced only limited measures to help the poor. These included increased public works programmes to provide jobs and some increases in federal government spending with tax relief, but these measures were far too little and came too late to prevent the worst effects of the Depression.