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The Wall Street crash and the depression of the 1930s
During the 1920s, the American economy boomed and many companies made vast profits. American people were very keen to buy share in these profitable companies and banks lent them money to do so.
Buying on the margin
The New York Stock Exchange in Wall Street allowed people to put down just 10% of the purchase price and pay the rest a month later; this was called 'buying on the margin'. People could sell their shares before the month was up and make a profit.
Buying on the margin worked when share prices were rising. But, in 1928 and 1929, many companies produced more goods than they could sell, so their profits fell and share prices stopped rising.
The Wall Street crash
The role of the banks
In 1929, when American banks realised that many companies were less profitable than they had been, they:
- Asked their clients to pay back money they had lent them
- Forced them to sell their company shares in order to raise that money.
This process caused company share prices to fall sharply, because there were now more sellers of shares than buyers.
The impact of the crash
- Many individual company shareholders lost most or all of their money
- A great number of banks closed down, unable to get back the money they had lent to clients to buy company shares
- Those people with bank accounts lost their savings when their bank failed
- Many businesses and shops ceased trading and their owners were bankrupted by the fall in the value of company shares which they owned
- With money tight, America started buying fewer goods from overseas countries, so they too were affected by economic depression. Businesses had to shut and huge numbers of people lost their jobs
- America demanded that Germany pay back money it had borrowed to recover from the First World War. This made the economic depression particularly bad in Germany. This economic crisis was one of the factors which helped the Nazis to rise to power in 1933.
With the collapse of the American Dream, which has sustained the hopes of so many American immigrants, people sought relief elsewhere. Until the benefits of President Roosevelt’s New Deal filtered through the economy, huge unemployment, low pay and reduced economic prospects meant that escapism became more attractive.
In the years following the Wall Street crash, the dominant form of popular culture was the cinema. Talking pictures had begun in 1927 and, in the 1930s, millions of people visited the cinema each week.
At the cinema, people could escape briefly from real life into a fantasy world. The cinemas themselves were designed like palaces, often had exotic names (Coliseum, Imperial, Regal etc.) and were staffed by people in smart uniforms.
On the screen, audiences could see handsome heroes and beautiful heroines in glamorous settings. Among the most popular types of film in this period were romances, musicals and swashbuckling adventures, where good inevitably triumphed.
World War I, also know as the First World War and the Great War, was a global conflict from 1914 – 1918, centred in Europe, involving all the world’s major economic powers in two opposing alliances.
An abbreviation for the National Socialist political party in Germany from 1920 until 1945.
The national ethos of the United States promoting the ideals of freedom and equality of opportunity for all.
A series of domestic programmes developed in the United States in the 1930s to respond to the effects of the economic recession.
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