The Wall Street Crash
Volume 4 | Issue 2 - Days That Shook the World
Article written by George Francis. Edited and researched by Liam Brake.
How bad do you think the current recession is? Do you sit and bemoan your poor job prospects and those ever-increasing train prices? Well, in comparison to America in the 1930s, we are positively affluent. The Wall Street Crash, which occurred in late October 1929, shook the American stock market to its very core, and its consequences proved to be catastrophic throughout the world.
In the modern age, we understand the cycle of boom and bust that dominates the global economy. However, in the twenties, many thought their prosperity would continue forever. The rapid industrialisation that had occurred in America since the end of the Civil War had benefitted many in their ever-expanding economy. The ‘liberty bonds’ issued in World War One helped America finance their efforts, but more importantly, introduced many working-class Americans to idea of financial speculation and securities for the first time. As the USA emerged from the war in a favourable financial position, this new craze for investment brought many ordinary people to the stock market trade. As banks had no limit as to how much they could borrow, Americans borrowed far more than they could ever possibly pay back (sound familiar?) in order to buy stocks which were rising exponentially, with the market growing by 50% in 1928 alone. In the modernised age of the ‘Roaring Twenties’, people simply wanted to get rich, quick.
However this speculative ‘bubble’ would inevitably have to burst. Those in charge of regulating the market were far too busy getting rich to care, and those who anticipated its collapse were ignored. Yet when the crash came, America’s devoted faith in the market came completely unglued. On ‘Black Thursday', 24 October, prices plunged drastically. A strange murmur of realisation came over Wall Street as people saw their investments sink into oblivion, yet this was just the beginning. Over the course of six days, twenty-five billion dollars ($25,000,000,000) of personal wealth was wiped from the stock market as shares lost nearly all their value in a frenzied week of trading. Wall Street workers, seeing the fortunes they had amassed over a life’s work turned to rubble, jumped from their offices to their deaths.
The results on America alone were cataclysmic. With citizens unable to pay back their loans, over three thousand banks collapsed, leaving entire life savings in tatters. In the late twenties, unemployment was at only 2% – by 1932, a quarter of the population were jobless. This loss of both capital and opportunities essentially relegated the world’s strongest nation in 1918 to a third world country. Even after the economy stabilised, many working class people could never again trust banks, and the cartoonish image of life savings being kept under their mattress became startlingly common.
The Wall Street Crash also played an important role in Europe. In the 1920s, America’s superior financial position allowed them to loan vast sums of money to Germany in order to help stabilise the growing problems caused by reparation payments following World War One. However, following the crash, America immediately recalled all their loans. As well as the large financial crisis developing the world over, Germany’s economic stability plummeted. This, in turn, caused a desperate political and social climate in which people began to see the benefits of a more radical politicians and policies. Namely: Hitler.
For socialists, this was the financial crisis that would finally put an end to that pesky oppressor, the capitalist, and ignite a global revolution. Unfortunately for them, in 1933 Franklin Roosevelt ascended to the presidency. Instead of nationalising many services such as steel and rail, Roosevelt galvanised the federal government into rescuing the nation. The government quickly became the country’s largest employer – millions were paid to build roads, hospitals and schools, to perform theatrical shows, to write and to create parks. Whilst we no longer see America as a benevolent welfare state, Roosevelt issued social security to the elderly, unemployment insurance for the jobless, and a federal reserve to protect citizen’s bank deposits to ensure that a financial crisis could never again cripple American society. It may be a stretch to say the Franklin Roosevelt single-handedly saved capitalism, as it was only the outbreak of war that fully restored the American economy, yet his innovative approach certainly repaired much of the damage wrought by the excesses of the twenties.
Whilst Roosevelt could not prevent future financial crisis and depressions, he had set a precedent so that when, in 2007, banks around the world began to fail, governments had to act, to ensure citizens would not lose their money. Never again could even the most laissez-faire governments avoid having a safety net in place. Thus the Wall Street Crash proves that some lessons are learnt from history. Of course, many are not: the modern globalised world has to accept that many of our economic fortunes are controlled by a very small number of bankers and financers with varying competency; just as in October 1929 the events on one street produced an unimaginable level of poverty and desperation in the western world. Therefore, the next time you curse inflation and the five pence rise of your mushrooms, remember those of the Great Depression whose entire life savings, jobs, hopes and dreams were mercilessly stripped away as a result of October 1929.