The Denoument of Destitution
Many attribute the Wall Street crash to the prosperity that filled America’s pockets in the 1920’s, which ultimately lead to the devastation of the Great Depression. However, in a country that built it’s entire economy on the shifty sands of chance, was prosperity indubitably the culprit? Was the economy at that time really on a strong foundation? Conversely, the cause could have been due to the greed of the wealthy or the temporary promise of wealth Wall Street offered to the already depraved, which lead to the denouement of destitution that was the crash of the Wall Street.
“The New York Stock Exchange was founded in 1817, although its origins date back to 1792 when a group of stockbrokers and merchants signed an agreement under a buttonwood tree on Wall Street.”
‘Wall Street’ is the name of a street in lower Manhattan, New York, America – the home of the New York Stock Exchange. It became the headquarters of the largest U.S brokerages and investment banks. It was named after a wooden wall that Dutch Colonists built in that region in 1653 against the British and Native Americans. It reached it utmost climate in 1929 and experienced its greatest fall thereafter, of which would never transpire again.
The prosperity of America in the early 1920’s ‘boomed’ from both economical, political and social changes. Credit and loan advertisements filled the newspapers and wealth grew in the industrial sector in the city – particularly the automobile industry. Agriculture was suffering under the clout of industry. Wealth was cultivated in the city and left barren in the fields of the farms, which sent many people to the cities, thus fueling the engine of industry. The increase of the population of the cities lead to an increase in employment, which stabilized many people’s lives. However, many didn’t want stable, but extravagant, which was a product of the speculation in the Stock Market. The Stock market was perceived as a one way ticket to wealth. Credit and loans influenced many to ‘buy on the margin’. This was a practice of people buying shares using loans. People only had to pay 10-20% of the value of shares while the other 80-90% was provided by the bank. This then increased the value of shares as more money was put into them. At first this proved to be very successful and many investors became known as ‘margin millionaires’. A copious amount of people had invested all their life savings in anticipation for wealth, which the Stock Market – particularly buying on the margin – exhibited as a sure thing.
As the stock prices expanded so did the size of many Americans wallets, which led to an inebriation of speculation. Despite the ‘doom-mongers’ questioning of the value of the shares people continued to buy, which led to an exuberance of investors that drove the prices of stock. The average earning per share rose by 400% in the years of 1923-1920. Yet, in actuality the stock prices had at some point was dissociated from the real potential earning of the share.
The first tremor of the crash was seen in March 1929, but no one took much notice to it because of a strong rebound following the June-July months of that year. In spite of the rebound, on the 24th of October the prices began to drop and because of such panic shot through every American. Then, in the same inebriated logic of buying shares, everyone began to sell; causing prices to plummet. October 29th – known as Black Tuesday – the market has officially crashed; share prices dropped by $40 billion in a single day and by 1930 the value of shares fell by 90%. The stock prices had first declined because many companies could not keep up with the demand for expensive consumer goods, such as cars, steel and housing construction. Furthermore, towards 1929 many struggled to sell, which then caused an even greater drop in the stock prices.
Although the immediate cause of the Wall Street crash was over speculation, the country was already economically fallacious. Many businesses managed their prices poorly; cashing in high profits, but keeping wages low, which lead to an uneven distribution of wealth in the country. Government policies also contributed highly to the crash. Tax reductions favoring the wealthy induced more speculation and the lack of any government control coerced monopolies and irrationally high prices.
During the years of prosperity the gross national product grew at an annual rate of 5%, the gross domestic at over $200 billion, wages increased by 15% and additionally the unemployment rate never exceeded 5%. Since such factors above were affected by the prosperity, they were also impacted profusely when the prosperity vanished. The crash of Wall Street impelled the colossal economic breakdown of the century, known as the Great Depression.
Such a decline in the economy was catastrophic, 650 banks across the country went bankrupt in 1929 and by 1933 4 000 banks had closed down. This was because many big investors in the stock market were financiers and bank managers whom would speculate on behalf of the bank, but when then money was gone everyone who had put their trust in the bank had lost their money; this includes people who did not even speculate. The entire banking system collapsed and millions who had enjoyed extreme prosperity one moment was in extreme poverty the next. Due to the credit boom in the early 1920’s many businesses were built on loans, but when such was not provided for anymore these businesses fell and shutdown. Over 100 000 factories were close, which cause unemployment to skyrocket. By 1933, the unemployment rate had increased from 5% in 1929 to 25%. As unemployment increased the ability to buy consumer goods decreased, which lead to more factories closing down and thus more people unemployed. This problem was also caricatured by the fact that the government had not instilled social security of any kind. As Hoovers opinion on such a matter was:
“It is not the function of the government to relieve individuals of their responsibilities to their neighbours, or to relieve private institutions of their responsibilities to the public.”
– Herbert Hoover.
This then prevented local authorities or the federal government from being able to emancipate the crash with resources that were not provided. The impact of the crash leading to the Great Depression intensified worldwide. Import tariffs had already contributed to a decline in international trade and the Great Depression worsened the situation, as more factories, farms and businesses were shut down due to the inability to finance operations; this meant a loss of the US enterprise and government income, which sent the country even deeper.
While the crash of Wall Street predominantly impacted the economy in the Great Depression it also had a monumental impact socially on the country. Thought there were few unemployment schemes, it was not nearly enough to aid the situation at hand. Due to such a vast unemployment rate many Americans were evicted from their homes and forced to live in the streets. Gradually millions were forced to live in informal settlements known as ‘Hoovervilles’, named after the president at the time – Herbert Hoover. Furthermore, people began to call the newspaper the ‘Hoover blanket’, the ‘Hoover flag’ was an out turned pocket, ‘Hoover wagons’ were cars pulled by mules and ‘ Hoover hogs’ were rabits people had to catch for food; all blame was directed towards the president. Bread lines created by non-profit organizations and religious groups were spread across the country; 82 breadlines in New York alone. Such depravity caused many riots and revolution was apparent as all trust in the bank, government or president was lost. However, upon the new elections any talk of revolution was eradicated.
Wall Street crashed on the 24th of October 1929 due to the wanton speculation of the American people. Millions chased the ‘American Dream’ and believed that the stock market was their way to it. However, in spite of the ridiculous prosperity that spawned from the Wall Street, more was lost than made and in such an event I conclude that perhaps the crash was not caused by extravagant lifestyles or the prosperity, but the lack or regulation and morality over speculation.
Written by: Ashleigh Koehn