Speculation & the Wall Street Crash (AQA GCSE History)
Revision Note
Written by: Zoe Wade
Reviewed by: Bridgette Barrett
Was the Wall Street Crash Inevitable? - Summary
The Wall Street Crash of 1929 marked the beginning of the Great Depression. The Depression was not an inevitable event but several factors made it more likely to occur. One key factor was the economic boom of the 1920s, which saw rapid growth in industries like manufacturing and finance. This made stock prices go up a lot because people thought they would keep making money.
There were warning signs of economic instability. People were borrowing excessively and speculating prices. This fuelled a speculative bubble in the stock market. This was when many investors bought stocks ‘on the margin’ meaning that they borrowed money to invest. This made the stock market and the wider economy unstable.
The unequal distribution of wealth contributed to the weakness of the US economy. While the wealthy few enjoyed prosperity, many working-class Americans struggled with low wages and debt. This limited their purchasing power and reduced consumer demand.
There were also problems with the way the stock market was run. The government did not regulate the stock market. Practices like stock manipulation and insider trading went unchecked. This increased the likelihood of a market collapse.
What Does Speculation Mean?
Speculation is when someone buys something hoping that its value will increase
They then will try and sell this at a higher price to make a profit
Speculation on the stock market was common in the 1920s
Share prices had boomed during the first half of the 1920s
Many people assumed that this would continue
More working-class people could buy shares. They had hopes of getting rich
Some of these people brought shares ‘on the margin’ and only sold their shares when the price was more than the debt
Speculation was incredibly risky
Companies set share prices with little to no financial evidence to justify their price
People could not afford for their shares to decline in value
Reasons for the Wall Street Crash
Reasons for the Wall Street Crash
Reason | How did this cause the Wall Street Crash? |
|---|---|
Overproduction | Mass production caused the consumer market to be saturated. By the latter 1920s, there was a fall in demand for consumer products. Companies began to fire workers and close factories. Demand fell even more because of this, as people had less money |
Unequal distribution of wealth | In 1928, 60% of people earned less than $2000 a year (the poverty line in the USA at the time)Many people and businesses did not benefit from the boom. Many US families were in debt, relying on hire-purchase schemes |
The laissez-faire attitude of the US government | The Republican Presidents (Harding, Coolidge and Hoover) did not protect the economy They did not regulate the banks which allowed banks to loan money recklessly. There were only a few big banks in the USA Many smaller banks did not have enough cash reserves if lots of people withdrew their money |
Tariffs | As the USA applied tariffs to foreign goods, other countries retaliated by doing the same to US products. US companies could not sell their surplus goods to foreign markets This made overproduction worse |
Share speculation | Due to overproduction and tariffs, many people began to think that companies would start to make less profit In 1928, share prices stopped rising as much as they had in previous years Experienced professional investors began selling their shares. Ordinary people panicked and also sold their shares This caused share prices to fall rapidly |
Examiner Tips and Tricks
You could be given a question which asks you if overproduction or share speculation was the most important reason for the Wall Street Crash.
This is a 12-mark question that expects you to refer to these two bullet points and another factor. Ensure you write three paragraphs that:
P - Make a point about the question
E - Use evidence that supports the point that you have made
E - Explain why this evidence caused the Wall Street Crash. Avoid repeating the point again. Explain how this factor led to the stock market crashing in October 1929
L - Link your explanation back to the question by stating how significant this factor was in the Wall Street Crash
Write a conclusion about which you think was the most important factor for causing the Wall Street Crash. Make sure that you consider short- and long-term consequences, importance and impacts in your conclusion.
Events in the Wall Street Crash
Between 24th and 30th October 1929, the USA’s economy collapsed
This event is called ‘Black Thursday’
People sold 13 million shares
Prices plummeted (fell rapidly) due to the amount of shares available
Shares that were worth $20,000 on the morning of 24 October 1929 were worth $1,000 by the end of the day
By 30th October 1929, investors had lost $4 billion
The ‘Wall Street Crash’ is named after Wall Street, where the Stock Exchange is based in New York
awaiting image
A graph from Statista.com showing the monthly valuations of stocks between January 1920 and November 1930. It shows a gradual rise in prices, accelerating in 1928 before rapidly falling in October 1929. The Dow Jones Industrial Average (DJIA) is a stock market index that tracks the performance of 30 prominent companies listed on stock exchanges in the USA
Worked Example
Why might the authors of Interpretations A and B have a different interpretation about the Wall Street Crash? Explain your answer using Interpretations A and B and your contextual knowledge.
[4 marks]
Interpretation A: Jonathan Norton Leonard, in his book “Three Years Down”, published in 1939. Jonathan Norton Leonard was a freelance writer and wrote multiple books throughout his career. At the time of the Wall Street Crash, he was writing several short stories to publish in The Saturday Evening Post “That night Wall Street was lit up like a Christmas tree. Restaurants, barber shops, and speakeasies were open and doing a roaring business. Messenger boys and runners raced through the streets whooping and singing at the tops of their lungs. Slum children invaded the district to play with balls of ticker tape. Well-dressed gentlemen fell asleep in lunch counters. All the downtown hotels, rooming houses, even flophouses were full of financial employees who usually slept in the Bronx.” |
Interpretation B: Ben Issacs speaking in Hard Times - Interviews from the Great Depression, released in 1970. In the 1920s, Ben Issac was a travelling salesman who sold clothes on credit to customers. He began to feel the effects of the economy on his business in 1928 before the Wall Street Crash. “All of sudden, in the afternoon, October 1929 … I was going on my business and I heard the newspaper boys calling, running all around the streets and giving news and news: stock market crashed, stock market crashed. It came out just like lightning… I wasn’t speculating in the market. Of course, I had invested some money on some property and some gold bonds…But the gold bond, I was told from the banks, is just like gold. Never lose its value. Later we found to our sorrow that was fake…” |
Answer:
Interpretations A and B may have different interpretations because of their jobs at the time of the Wall Street Crash (1). Jonathan Norton Leonard was a freelance author who wrote for newspapers. As a result, his income was not affected by the Wall Street Crash as newspapers were considered a necessity at this time. He would not feel an immediate impact from the Wall Street Crash (1).
However, Interpretation B was by Ben Issacs, a travelling salesman who sold clothes on credit to customers. He is likely to have noticed the impact of the Wall Street Crash more quickly as his business relied on people borrowing money to buy his clothes (1). As a result, he felt the impact almost immediately, as people no longer could buy from him (1).
Examiner Tips and Tricks
A good response to this question will consider the provenance of the interpretations. Provenance is the background information of interpretations and sources. The provenance can be found at the top of each source or interpretation. Essentially it is:
Who - The person who created the source/interpretation
What - The type of source/interpretation it is, for example, a newspaper article or a book
When - The date when the source/interpretation was made
Where - The place that the source/interpretation is based on
It is important to use the provenance to explain:
The differences between each author’s opinion
How this impacted their interpretation of a historical event
Answering this question will help you when encountering Question 3, which requires you to decide which interpretation is more convincing.
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