Stocks and shares are bought and sold. A stock exchange is also often called a stock market



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The 1929 Stock Market Crash

Wall St & the New York Stock Exchange

Wall Street is in the financial district of New York City. It is home to the New York Stock Exchange. A stock exchange is where stocks and shares are bought and sold. A stock exchange is also often called a stock market.


The 1929 Stock Market Crash

The Wall St stock market crash on 24 October 1929 is regarded as the event that marked the beginning of the Great Depression, however, it was not the only cause.


The 24 October is known as “Black Thursday” because stock market share prices began to drop. As a result panicked investors began to sell their shares. This frenzied selling caused share prices to drop even further as investors lost confidence in the market. In less than 2 hours, nearly $10 billion was wiped off the stock market.
On the following Tuesday, 29 October 1929, further selling on the stock market caused share prices to drop even further. A record number of shares (16 million) were traded that day and $14 billion was lost. The day became known as “Black Tuesday”.
Causes of the 1929 Crash

A major cause of the 1929 crash was the high levels of speculation that had been going on throughout the 1920s. Speculation is when investors quickly buy and sell shares in order to make a short-term profit. High levels of speculation can result in share prices being pushed up beyond their real value. A highly speculative market relies on investor confidence. Once investors start to lose confidence, it collapses.


Glossary:

Shares: parts into which a company is divided. Investors can buy and sell parts of a company, such as Woolworths.

Stocks: another name for shares.

Market: where goods are bought and sold.

Share prices: investors have to pay money to buy shares in a company. Shares in different companies have different prices.

Investors: people who buy shares on the stock market.

Confidence: in this context, confidence refers to how investors feel about the stock market. If they feel like confident that it is doing well they are more likely to buy shares. If they lose confidence in the stock market they will want to get rid of their shares by selling them.

Speculation: investors quickly buy and sell shares in order to make a short-term profit.
References

Anderson, M., Low, A., Keese, I. Conroy, J. (2010). Retroactive 2: Stage 5 Australian History, 3rd ed. Queensland: John Wiley & Sons Australia, Ltd.

Burns, R. (dir.) (1999). New York: A Documentary Film, episode 5 (Cosmopolis) [TV Series]. PBS.

The Economist (2012). Economic Terms. Retrieved from:

http://www.economist.com/economics-a-to-z/s#node-21529625

Herbert Hoover Presidential Library & Museum. Gallery 6: The Great Depression. Retrieved from http://www.hoover.archives.gov/exhibits/Hooverstory/gallery06/index.html



The Great Depression



What is an economic depression?

A depression is a time of low economic activity, where people find it difficult to both buy and sell products. It causes unemployment to rise.


The Great Depression of the 1930s

During the 1930s most countries of the world were hit by the economic crisis known as the Great Depression. The impact was first felt in the United States. It was characterised by:



  • The collapse of the Stock Market in 1929.

  • The collapse of the banking system. Many banks lost money with the stock market crash. Therefore, they stopped lending money to people and as a result, spending slowed. Many people lost their savings when banks closed down.

  • Reduction in spending. Many people could not afford to buy goods at the rate they had previously.

  • Widespread unemployment. Many people in America and other countries lost their jobs and could not find more work.

  • Reduction in international trade. In response to the Depression, America imposed taxes on imported goods to encourage Americans to buy local goods. This reduced international trade.


The Causes of the Great Depression

The causes of the Great Depression are widely debated by economists.

However, a number of developments in the 1920s contributed to the crisis:


  • Too much speculation on the stock market.

  • The Stock Market Crash.

  • Over production of goods. More goods were being produced than could be purchased and this lowered the prices for these goods.

  • Over production of food. Farmers in the US produced too much food in the 1920s so prices for their food became lower.

  • Unequal distribution of wealth. The prosperity of the 1920s was not shared equally, allowing the wealthy even greater profits from the relatively low income of the working class. As such, working class people suffered immensely during the Depression as unemployment rose.


Social Impact in Australia

The Depression hit Australia hard and fast for a number of reasons. Firstly, throughout the 1920s the Australian Government had borrowed large sums of money from overseas countries. Now that America and European countries were experiencing the Depression, they demanded that the loans be repaid. Secondly, Australia’s economy at the time relied on exporting natural resources from the farming, forestry and mining industries. During the Depression prices for these exported goods fell dramatically.

As a result, unemployment in Australia in the 1930s grew rapidly.
Below is a graph showing levels of unemployment in Australia from 1928-39. The figures come from Australian Bureau of Census & Statistics.

(To put these figures in context, the Australian unemployment rate in May 2012 was 5.1%, according to the Australian Bureau of Statistics)


As unemployment increased, many people and families experienced poverty.
Activities:

1) Underline or highlight any words or concepts you don’t understand or would like clarified.


2) Briefly (in 2 or 3 sentences) explain the stock market crash in your own words.
3) What were some of the causes of the Great Depression?
4) What were some of the consequences of the Great Depression, in Australia and overseas?
5) Why did the Depression, which began in the United States, spread to Australia?
6) Look at the graph above. What were the three worst years for unemployment in Australia? Describe what pattern of unemployment levels after 1932.
7) What do you think might be the human consequences of high unemployment?
References:

Anderson, M., Low, A., Keese, I. Conroy, J. (2010). Retroactive 2: Stage 5 Australian History, 3rd ed. Queensland: John Wiley & Sons Australia, Ltd.



BBC (2012). Causes of the Great Depression. Retrieved from: http://www.bbc.co.uk/schools/gcsebitesize/history/mwh/usa/walldepressionrev2.shtml

Australian Government (2009). The Great Depression. Retrieved from: http://australia.gov.au/about-australia/australian-story/great-depression


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