STOCK MARKET CRASH OF 1929.   Term Paper ID:30260 Click to get this paper

Essay Subject: Discusses factors leading up to the collapse of the market and the Great Depression.... More...

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Paper Abstract: Discusses factors leading up to the collapse of the market and the Great Depression. Federal Reserve Policy. Arrogant attitude of the bankers, government, big business and the investors. Causes of the crash including speculation, overpricing of stocks, fraud & corruption, margin buying. Role of President Herbert Hoover. Economic structure of 1920s. Paper Introduction: The factors leading up to the stock market crash of 1929 and the Great Depression all had one element in common--arrogance. The bankers, the government, big business, and the investors all believed that the profits they were enjoying would never end, that the American economy was so strong that nothing could go wrong, and that no steps were necessary to safeguard against a collapse of the market and the economy. They believed this despite the fact that two earlier recessions had occurred in the 1920s, or perhaps because those recessions came and went with little lasting effect. Whatever the economic, social and/or political lessons to be learned from the events of the 1920s which resulted in the crash of 1929, Galbraith makes clear the moral lesson: "It is that very specific and personal misfortune awaits those who presume to Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Margin buying is anothercause, but not a major reason for the crash. Savill, "The Crash of 1929."http://mypage.direct.ca/r/rsavill/Thecrash.html----------------------- 9 . . Contrary tothis traditional view, some conservatives believe the opposite: . Finally, Savill gives an overview of the decade which shows how thenation was intoxicated by prosperity, by conveniences provided byelectricity, rampant consumerism fed by those profits and that technology,the Jazz Age, but especially by the stock market: "In the years from 1925to 1929 it was almost a craze to play the market. Lippmann wrote of theweakness, passivity and ignorance of the politicians from Hoover down inthe 192 s: "It is evident that officeholders have been the last great groupof people to realize that the New Era is over." Of the economic structureof the 192 s after the crash, Lippmann declared: "The structure hascollapsed in all its essential parts, and the few tottering remnants of itwhich remain are useless and dangerous." He warned that "We shall notreturn to the highly artificial and utterly unstable economic arrangementsof the post-war era which have now collapsed." With respect to social,cultural and economic connections in the crash, Lippmann railed against the immorality of the twenties, attacking its causes: "War itself," "inflation," "false values," and "frantic greed." This immorality was also partially the fault of the American public, since "a vigorous people which is properly led does not become the passive victim of conditions; it resists them and overcomes them."[9] In short, all wealthy and powerful sectors participated in creatingand profiting from the conditions of greed and speculation which createdthe crash. got violently worse. Laissez- faire, free-market capitalism had been allowed to run amok in the 192 s, the argument runs, and the result was the prosperity enjoyed by the people of that decade, followed by a complete, unforgivable disaster, the Great Depression.[1 ] In other words, this prevailing view holds that weak government and acapitalism run amok created or encouraged the crash and Depression, and thestrong government of the New Deal turned the economy around. BibliographyGalbraith, John Kenneth. Incomparing the 1929 crash with other crashes, Galbraith destroys one of themany myths associated with the l929 crash, namely that it was a quick crashwhich was quickly over like earlier: A common feature of all these earlier troubles was that having happened they were over. One criticism of Galbraith's book is that he analyzes the stockmarket crash not as if it were a natural and inevitable part of the greedof the capitalist system, but as if it were an aberration which could havebeen prevented with a dose of realism and honesty in the years leading upto the crash. The general cause of the crash most frequently mentioned in thesources consulted for this study is the "speculative orgy" of the financialcommunity in the 192 s. No safeguards were in place to protect against acrash, as they are today. The crash "came directlyfrom wild speculation which collapsed and brought the whole economy downwith it." Zinn quotes Galbraith, who says that "behind that speculation wasthe fact that 'the economy was fundamentally unsound.'" For example, Zinnnotes: very unhealthy corporate and banking structures, an unsound foreign trade, much economic misinformation, and the 'bad distribution of income' (the highest 5 percent of the population received about one- third of all personal income).[6] Galbraith writes that in a "boom" period such as the 192 s, in whichwealth is increasing for participants---individual and corporate---in thestock market, the government will be hesitant to become involved, and thisheld true in the 192 s. [1 ]Stephen Goode, "Federal Meddling Made History." Insight on theNews, Feb 16, 1998, Vol.14, No.6, 22. Just the opposite. Themarket crash did not cause the Depression but was one symptom of theunderlying weaknesses of the overall economic structure. He was notactive, however, and the market crashed, in part because of hisstatements.[3] Galbraith seems to feel the "speculative orgy" is a particularlyAmerican condition: "No one can doubt that the American people remainsusceptible to the speculative mood---to the conviction that enterprise canbe attended by unlimited rewards in which they, individually, were meant toshare."[4] In other words, Galbraith is essentially saying that that blind self-interest on a national scale was at the heart of the 1929 crash. [5]Galbraith, 111, 179. It was government economic policy throughout the 192 s (and not the lack of government intervention) that must be held responsible for the collapse of American prosperity in 1929. "Federal meddling made history." Insight on the News, Feb 16, 1998, Vol.14, No.6, 18-25.Savill, R. In this regard, perceptionsare very important in the rise and fall of the market. Fraud andcorruption played a part, but less than claimed by many. The Great Crash: 1929. At the heart of this rampant exercise ofspeculation was the chance to buy stock on margin. They believed thisdespite the fact that two earlier recessions had occurred in the 192 s, orperhaps because those recessions came and went with little lasting effect. [4]Galbraith, 191. Capitalism, despite its attempts at self-reform, its organization for better control, was still in 1929 a sick and undependable system.[7] Galbraith shows in his book that individuals and groups in everysector of society, and at every level of government, were culpable in thecrash. The little guy couldspeculate with the seasoned pros in the pit."[13] Though the market crashdid not cause the Depression, it did create a national shock whichcontributed to that Depression. The singular feature of the great crash of 1929 was that the worst continued to worsen. . The factors leading up to the stock market crash of 1929 and theGreat Depression all had one element in common--arrogance. Insider trading,for example, was present but not widespread. . Many stocks were overpriced, that is, the worth of what the stockrepresented was not as high as the price reflected, so that, in effect, thehigh stock prices were an illusion waiting to crash. [9]Peter Stearns, "The Strange History of the Decade: Modernity,Nostalgia, and the Perils of Periodization." Journal of Social History,Winter 1998, Vol.32, No.2, 278-279. "Causes of the 1929 Crash." http://www.arts.unimelb.edu.au/amu/ucr/student/1997/Yee/1929.htmlZinn, Howard. Federal Reserve Policy wasan important cause. [11]Ibid., 24. Unlike these other occasions, in 1929 the recession . . As Zinn writes, the stock market crash did indeed mark the beginningof the Great Depression, in historical hindsight. [2]Tracy Yee, "Causes of the 1929 Crash."http://www.arts.unimelb.edu.au/amu/ucr/student/1997/Yee/1929.htm# [3]Ibid. [7]Ibid., 378. Goode writes that the traditionalexplanation is that it was the runaway, uncontrolled,irresponsible capitalism of the 192 s that was to blame: human greed carried to extreme. . Hoover himself, justelected, declared that stocks were priced too high, and gave the impressionhe was going to be active in controlling the stock market. Whatever the economic, social and/or political lessons to be learnedfrom the events of the 192 s which resulted in the crash of 1929, Galbraithmakes clear the moral lesson: "It is that very specific and personalmisfortune awaits those who presume to believe that the future is revealedto them."[1] The almost continuous prosperity of the decade of the 192 spersuaded those on Wall Street that the future held more of the sameendless profit-taking. This is the unique feature of the 1929 experience.[5] Galbraith notes that if the only problem in the economy were a weakstock market, then the Great Depression would not have occurred. . New York: Time, l961.Goode, Stephen. [12]Ibid., 25. [13]Richard R. In addition, starting from the beginning of 1929, the interest rate charged on broker loans rose tremendously. . . . There were a few individuals who warned of imminent disaster, buttheir voices were cries in the wilderness of capitalist greed. [8]Ibid. . . In addition, Yeelists some of the more specific causes: 1. The leadership of President Herbert Hoover was certainly one cause ofthe problem. . 4. "The Crash of 1929." http://mypage.direct.ca/r/rsavill/Thecrash.htmlStearns, Peter. New York: HarperPerennial, 1995.----------------------- [1]John Kenneth Galbraith, The Great Crash: 1929 (New York: Time,l961), 3 . His weakness as an effective leader, however, was a part ofthe capitalist expectation of the era that government would not, should notand did not need to interfere with the market, with big business, or with"temporary" economic downturns which many believed the crash to be.Hoover's leadership was reflected in his statements on the crisis: "Whenmore and more people are thrown out of work, unemployment results," and,"This country is not in good condition." As for big business's leadershipand wisdom about the crash, its causes and effects, Henry Ford declared:"The average man won't really do a day's work unless he is caught and can'tget out of it." As Zinn writes, "As few weeks later [Ford] laid off 75, workers."[8] Stearns writes of Walter Lippmann's analysis of the 192 s and thecorruption and disillusionment preceding the crash. As Zinn writes, A socialist critic would go further and say that the capitalist system was by its nature unsound: a system driven by the one overriding motive of corporate profit and therefore unstable, unpredictable, and blind to human needs. [6]Howard Zinn, A People's History of the United States (New York:HarperPerennial, 1995), 377. . In otherwords, there was far more wrong with the nation than the stock market. This policy reduced the amount of broker loans that originated from banks and lowered the liquidity of non-financial and other corporation that financed brokers and dealers.[2]5. The bankers, thegovernment, big business, and the investors all believed that the profitsthey were enjoying would never end, that the American economy was so strongthat nothing could go wrong, and that no steps were necessary to safeguardagainst a collapse of the market and the economy. Furthermore, it was actions taken by the government and advocated by President Herbert Hoover (and continued by Franklin Roosevelt) that exacerbated the Depression and made it last so long.[11] Such conservative analysts argue that "An unhampered market would notgenerate booms and depressions and, if confronted by a depression broughtabout by prior intervention, it wouldspeedily eliminate the depression and particularly eradicateunemployment."[12] In matters of economics, of course, and with the manipulation ofstatistics, any claim can be made, but most analysts argue to the contrary--that unbridled market activity, fueled by an "orgy of speculation,"resulted in overblown stock prices which eventually collapsed overnight. . The statements of public officials led to the growing belief that stockprices were too high, and once prices began to fall, those statementsgreased the slide, in effect, for the crash. Richard. 2. 3. "The Strange History of the Decade: Modernity, Nostalgia, and the Perils of Periodization." Journal of Social History, Winter 1998, Vol.32, No.2, 263-29 .Yee, Tracy. Some analysts argued that it was not government passivity whichcreated the crash, but simply bad policy. One could buy stocks oncredit, using as collateral the ownership of the stock. A People's History of the United States. . Free-market capitalism wasn't responsible for the Great Depression. Monetary policy was tightened, which encouragedlowering of stock prices. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.