CAUSES OF THE GREAT CRASH [WISP]

1. Wall Street
• Early 1920s economic boom fueled confidence; many saw buying and selling shares as a quick way to make money.
• Share values increased between 1924-1929, encouraging bolder trading.
• Share prices rose far beyond the actual worth of companies; speculation inflated prices.

2. Insider traing & corruptionrruption
• companies floated shares; for example, a non-existent South American mine attracted investment.
• A Senate Committee investigation found corruption and between banks and brokers.

3. Speculation
• By 1929, 600,000 people were speculating in the stock market.
• Many poorer investors bought shares ',' borrowing 90% of the share value, totaling $9 billion in 1929.

4. Panic
• Losses of confidence occurred in March and September 1929; banks temporarily stabilized the market through mass buying of shares.
• On 24th October, 1929, 13 million shares were sold in panic, leading to a price crash.
• Further heavy selling on Monday forced banks to stop buying shares.
• Speculators, fearing losses on loans and worthless shares, panicked; on 29th October, million shares were sold, causing the market to slump again.

 
CAUSES OF THE GREAT DEPRESSION [I'm Buggered]

1. International Trade
• President Hoover blamed the financial collapse in 1931 and reduced world trade for the Depression.
• The Tariff in 1930 led to retaliatory tariffs by 60 countries, harming U.S. industry, especially agriculture.

2. Maldistribution of Wealth
• Historians argue that wealth inequality was a major cause of the Depression.
• The top 5% owned a of the wealth, while 40% of the population lived in poverty.
• Overproduction and led to falling prices.

3. Bank Failures
• Thousands of speculators defaulted on margin loans, causing banks to go bankrupt, especially in poorer areas.
• Bank runs ensued as people rushed to withdraw their money, leading to over bank failures between 1929-1933.
• Bank collapses reduced lending, worsening the downturn.
• Bank failures wiped out savings, reducing consumer spending and further deepening the economic crisis.

4. Underlying economic weaknesses
• Industries like , iron, textiles, and agriculture were already struggling in the 1920s.
• Banks' reduced lending caused a money supply contraction, leading to recession.
• Studies attribute the Depression to overinvestment, low profitability, and job losses.

5. Gold Standard
• The Gold Standard limited the money supply and government spending, worsening the recession.
• Countries abandoning the Gold Standard earlier, like in 1931, recovered more quickly.

6. Great Crash
• Scholars debate the role of the Great Crash in causing the Depression.
• Only 1.5 million shareholders existed in a country of 123 million; 600,000 were speculators, some wealthy enough to absorb losses.
• However, the crash led to and damaged half of U.S. businesses, harming the overall economy.

7. Expectations - the Cycle of Depression
• Loss of confidence led people with money to hoard it rather than spend, reducing demand.
• Business failures and unemployment created a vicious cycle of reduced spending and further economic decline.
• companies failed between 1929-1933, exacerbating joblessness and income loss.

Economic Theories on the Great Depression

8. Reduced Demand (Keynes)
• John Maynard Keynes attributed the Depression to a drop in spending, caused by excessive .
• In 1931, he noted widespread hoarding of money, estimated at $500 million.

9. Economic Policies and the Federal Reserve (Friedman/Bernanke)
• Milton Friedman and Anna Schwartz's '' theory blamed the Depression on a reduction in the money supply due to Federal Reserve policies.
• In 1931, the Fed raised , exacerbating the money supply contraction.
• Ben Bernanke later agreed, blaming the Fed for failing to support the banking system and causing the Great Depression.

10. (Fisher)
• Irving Fisher's 1933 theory argued that after the Great Crash, people focused on reducing debt by selling assets and cutting spending.
• This led to deflation, further deepening the economic downturn.