The Wall Steet Crash didn’t cause the depression

The Wall Street Crash made a significant contribution to the onset of the Great Depression. It was a catastrophic downturn in share values caused by over-speculation. There had been repeated warnings during the “Roaring Twenties”, a time of prosperity, that the high values could not be sustained, but speculation continued nonetheless. Over a period of a few weeks in October 1929, the shares dropped in value disastrously with a number of knock-on effects.
The decline in stock prices caused bankruptcies, severe macro-economic difficulties including business closures, firing of workers and other economic repression measures. The resultant rise of mass unemployment and the Great Depression itself is seen as a direct result of the crash.
However, historians and economists still differ over whether the collapse of share prices caused the Great Depression or simply reflected the underlying weakness of the domestic economy. Some academic experts wonder whether the Wall Street Crash was anything more than a typical market correction signaling the beginning of a typical recession. In their view, the day has erroneously been linked to disconnected events that came along nearly two years later.
”The Depression did not begin the day of the crash of 1929,” said Ben S. Bernanke, a professor of economics and public affairs at the Woodrow Wilson School at Princeton University. ”It took a series of unrelated international financial events in late 1930 and early ’31 to turn what had been a normal recession into a panic.”
Though stock market investors refused to acknowledge any possibility other than limitless increases in share prices, warning clouds had risen over the horizon months before the crash. Bond prices began to retreat in the spring, and in May Congress adopted the Smoot-Hawley tariff law, establishing a wall of protectionism around the nation, taxing foreign imports.
That exacerbated the problem by preventing Europeans from selling enough goods in the United States to earn enough dollars to pay off their debts from World War I, but those effects did not show up immediately.
”The real disaster started in December 1930, with the failure of a private bank with an unfortunate name, the Bank of the United States,” Professor Bernanke said. Though the institution had no relationship to the Federal Government, the story of its collapse helped set off a panic among small depositors.
Bernanke describes 1931 as a year of small crises that built into a catastrophe. In April, the largest bank in Austria failed, helping to create a financial panic in Europe. In September, Britain abandoned the gold standard. Runs on banks restricted the money supply, setting off a round of severe deflation.
”The bottom fell out in June of 1931, nearly two years after the stock market crash,” he said. During the next two years, a worldwide financial panic touched off political and social upheaval from Central Europe to North America to the Far East.

This entry was posted in A Level History, Economic History, Roosevelt and tagged , , . Bookmark the permalink.

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