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Essay on The Great Depression
In America, through the 1920's, new industries and new methods of production developed. America was able to use its great supply of raw materials to produce steel, chemicals, glass and machinery that became the foundation of an enormous boom in consumer goods, making America more prosperous. Many US citizens invested on the stock market, speculating to make a quick profit (McElvaine, 1993). This great prosperity ended in October 1929. People lost confidence as rumors spread that the boom may be over, the stock market crashed, the economy collapsed and the USA entered a long depression. Poverty, unemployment and homelessness became big problems.
The Wall Street Crash happened on 24th October 1929 and led to the Great Depression. Was the Wall Street Crash actually the cause of the Depression? In the great boom of the 1920's many companies were doing well. Many people bought shares in these companies 'on the margin'. Between 1920 and 1929 the number of shareowners rose rapidly from 4 million to 20 million (Rose, 1994). There were thousands of inexperienced speculators, all buying shares in companies that they knew nothing about. They didn't understand how well the company may do, they just followed others' advice and stories in the newspapers and invested to make a profit and pay back the money which they had borrowed to buy the shares in the first place (McElvaine, 1993). The banks were also involved in this share speculation. Many banks lent money to anyone, regardless of whether they had any money to pay them back.
This turned out to be a big mistake, especially as many banks were small banks as laws stopped large chains from forming. The banking system was very unstable, so was the stock market boom of the late 1920's which people thought would continue forever. By the late 1920's there was a falling demand for products, due to people having either all they wanted or all they could afford, but just as many goods were being produced as before......
