The wall street crash

THE WALL STREET CRASH

Between 1919 and 1924 the European economy went through a period of stagnation, all the European countries that had been involved in the conflict were burdened with a heavy public deficit, caused by the vast military expenses, too.

The factors that had determined it had been the enormous investments in the fixed capitals of great industries and a reorganization of the productive systems.

Until 1928 the U.S.A. enjoyed an extraordinary economic growth. After taking part in the First World War, besides exporting its agricultural and industrial products to Europe, it helped European industries to overcome the post-war crisis, investing large capitals, too.

Between 1925 and 1928 the value of the shares exchanged at Wall Street went up enormously.

On the 24^th October 1929 and again on the 29^th, share prices on Wall Street ( the New York Stock Exchange) fell dramatically. This fall became know as the Wall Street Crash and it led to the Depression, which hit the USA in October 1929 and then spread to most countries in the world.

Actually production had increased so much that it was impossible to find buyers both in America and Europe.

The causes of The Wall Street Crash  are:

In the 1920s, share princes in the USA rose year after year. Many Americans believed that they could make money easily by investing in shares. The buying and selling of shares was almost uncontrolled. Many people bought shares without realising that they could lose all of their money.

Share prices went up because companies encouraged people to buy on credit. Hire purchase was easily available, but few people realised that it was very dangerous to go on selling on credit. Eventually people would not be able to make the repayments.

Some companies that people invested their money in were bogus; they simply did not exist. Other companies did not tell the truth. It was difficult for investors to know what they were buying.

The US government did not believe that it had any responsibility for what was happening . The presidents  in the 1920s, Warren Harding and Calvin Coolidge, believed that it was not their job to interfere.

Some Americans predicted that a crash was coming , but very few people took them seriously. Most people believed that the USA was so wealthy and so powerful that it could not happen. They were wrong.

The lives of Americans changed.  All over USA, people drew their money out of banks and kept It at home. Many banks collapsed as people withdrew their and many companies went bankrupt as people stopped spending. Millions of people lost their jobs . The unemployed often lost their homes and were forced out onto the streets. Many began to live in huge shanty tows on the outskirt of US cities. Also many industries collapsed especially the textiles, the cotton and the wool industries.

The US President of the time, the Republican Hoover, refused benefits to the great number of jobless Americans. He thought it was necessary to grant helps to entrepreneurs and reduce public expenditure, but the crisis was not overcome.

At the presidential election of 1932 Hoover was substituted by Roosevelt, the Democratic candidate. He realized a large economic program, called "New Deal".

The New Deal outlined the idea of a greater interest of the public institutions to the living conditions of the common citizen and a collective effort of federal organizations. It also included measures for the recovery and the control of the stock market.

This project fixed contributions and financing in order to realize numerous public works, such as: roads, dikes to prevent floods and energy production at low costs.

Farmers were given financial helps and were invited to limit their areas as to avoid excessive production.

The State itself promoted industrial activity and introduced social measures, such as assistance to the jobless, old-age pensions and particular care for children and mothers.

In 1934 the economic situation began to improve. Roosevelt was convinced that to make industries earn it was necessary to give people more spending power by means of sufficiently high salaries. Moreover, if private citizens were not able to favour any economic development and employment, the State had to act as an entrepreneur and spend, even if this led to a series of debts.

Roosevelt's plan was supported by a famous economist of the time, John Maynard Keynes, who stated that a "balance in red" was not a harmful event for the State if it brought employment or any other positive result in future.

John Maynard Keynes revolutionized economics with his book "The General Theory of Employment, Interest and Money" in 1936. This is the work that most influenced the social and economic world in the 20th Century. It also stressed the new role of government in our society, since Keynes thinks that only an active State intervention in the economy can support employment. When the demand is insufficient the State must diminish taxes and increase public expenditure, even if this involves a balance deficit. This represents an evident breaking with the classical school that supported the non-intervention of the State in the economy and the rule of balancing the budget.

In the USA, but also in other European countries, the Crisis of 1929 had introduced a transformation of Capitalism, whose focus was the State intervention.

The United Kingdom was not so deeply involved in the crisis, just because it was not economically so dependent on the USA and thanks to its large colonial empire.

The Soviet Union, which was not tied up to international business, was not completely involved in the crisis.