To what extent was the Wall Street Crash caused by speculation? Essay

The Wall Street Crash of 1929 was the most devastating stock market crash in the history of the United States of America. But to what extent was speculation at fault for a major drop in confidence in saving and buying goods; and for the crash itself? The Wall Street Crash appears to not have been caused by any one factor, including the factor of speculation. A major factor of the crash is overproduction.

The confidence instilled of the American boom of the 1920s meant that more and more consumer goods were being manufactured to sell in all areas from cars to agriculture.This meant that companies were manufacturing far more than they could sell, meaning stock that was already paid for was not being sold and companies had to pay to maintain this stock in warehouses, etc. This meant that companies affected were making a loss on the remaining stock, causing share prices to fall as the deficit increased.

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Republican policy may also be at fault to an extent for the crash. Republican Herbert Hoover’s ‘Laissez-Faire’ attitude to economics meant that there would be little or no intervention from the government to try and correct the crash.This was a problem as banks were failing and people were being put into poverty; meaning the downward spiral continued as more and more people couldn’t spend money on consumer goods: something that fuelled the American boom of the 1920s. Another factor, some would say, was the problem of the declining export market. Again this is at least partially a fault of Republican policy. The Republicans taxed all imports into the United States in an attempt to encourage the growth of the domestic economy in terms of consumer goods.This became a problem as many countries elsewhere, in response to the lack of imports, formed blocks against American exports also.

This meant that American companies were selling goods to a declining sales-base, reducing profits and therefore partly a cause for a fall in share prices. Others would argue that the decreasing level of confidence and security at that time was largely the cause of the Wall Street Crash. The low confidence levels meant that people began to desperately withdraw money and sell shares meaning that banks couldn’t cope, and prices of shares decreased rapidly as people desperately sold shares.This also meant that there was little confidence in buying consumer goods with money that people believed they may need later for essentials. This also contributed to a downward spiral – as people bought very few shares and goods, share prices continued to fall and companies continued to lose money.

It could also be argued that growing poverty due to the declining need for workers and the growing use of machinery to maximise profits and increase efficiency is also at fault for the Wall Street Crash.The growing poverty of the time meant that, while companies were in theory more profitable, the sales-base was declining and so were the profits. This may have added to an already declining level of profits and caused the fall in share prices to drop even more dramatically. However, some would argue that speculation is the main factor that caused the Wall Street Crash. Speculative purchasing causes share prices to increase in value perhaps above their true value, and speculative selling does the opposite to this.This means that true values are exaggerated, and as confidence in the market is largely determined by share prices, when people want to sell shares at any one time, prices can fall and confidence can fall.

This caused a certain degree of panic that is said to have caused the crash due to people frantically selling and therefore prices falling. In America a large amount of speculative buying may have caused prices to rise very high prematurely, and what followed was a large amount of speculative selling as people attempted to make their money off it, causing prices to fall.This may have affected the confidence of the general public in the economy in general, which may have caused many to desperately withdraw money from banks, thinking the economy was failing. This, as the trend didn’t cease, may have contributed to the bank failures in which many people lost everything and this is, some would say, the major cause of the Great Depression.

In conclusion, there are many different factors that caused economic insecurity and possibly caused share prices to fall and the Wall Street Crash to commence.All things considered, it appears that speculation may have been a large factor, as share prices’ true values don’t have to move very much but a large amount of speculative selling can cause prices to fall. This could have caused the general population of the United States to lose all confidence in their economy, which is what probably caused people who were not economists (i. e. they didn’t understand the effects of speculative selling and buying), but were trying to ‘get rich fast’, to desperately withdraw money and sell shares even more.


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