Introduction

The economic prosperity of the 'Roaring Twenties' came to an end in October 1929.

On Black Tuesday, 29 October, 16 million shares were sold on the stock market in Wall Street and the economy collapsed completely.

By 1930, America was in the Great Depression.

Long term reasons for the crash

Overproduction and underconsumption in agriculture

As farming techniques improved, farmers started producing more food. However, the demand for grain fell in America because of Prohibition and changes in tastes in food.

There was also less demand from Europeans for food from America because they were growing their own crops and there was a tariff war.

Overproduction led to falling prices.

Thousands of farmers fell into crippling debt, could not pay their mortgages and so became unemployed after having to sell their farms or being evicted. In 1924, 600,000 farmers lost their farms.

Sharecroppers in the south, who were mostly black Americans, were often evicted when the white-owned farms had financial problems.

Overproduction and underconsumption of consumer goods

By the end of the 1920s, there were too many consumer goods unsold in the USA.

Mass production methods led to supply outstripping demand.

People who could afford items, such as cars and household gadgets, had already purchased them. Also, people in agriculture and the traditional industries, who were on low wages, could not afford consumer goods.

This meant workers were laid off, which reduced demand for goods even further.

Decline in traditional industries

Coal mining, shipbuilding and railroads were either stagnant or in decline. Mechanisation also caused unemployment in these sectors.

Protectionism

America tried to sell its surplus goods in Europe. However, the Fordney-McCumber Tariff Act 1922 had led to European countries imposing tariffs on American goods.

This meant American goods were too expensive to buy in Europe and, as a result, there was not much trade between America and Europe.

Laissez-faire

The laissez-faire policy of the Presidents meant there were not enough safeguards in the economy, especially on the banks and the stock market.

Banks were not regulated.

There were very few large banks in America, but there was a huge number of small ones which were unstable and did not have the financial resources to cope with the rush for money when the Wall Street Crash happened.

Many banks had already closed even before the crash, leaving thousands of customers with no money at all.

Debt increasing

A lot of Americans bought goods on hire purchase. As a result, they owed money to shops and credit companies. Many of these businesses went into financial difficulties when people failed to pay their debts.

House prices increased a great deal in the early 1920s. However, after 1926, house prices fell leaving some Americans owning houses that were worth less money than what they had paid for them.