Реферат: The Economics Of The Causes Of The

could not expand forever. You could only own so many radios and so many cars before you didn’t want any more; this is law

of diminishing marginal utility in action. Because agriculture had been dismissed as unprofitable, there was nothing left in the

economy after radio and construction went down.

As more and more people speculated in the stock market prices, were driven way up, beyond the actual worth of a

company. Instead of reflecting a company’s assets, dividends, or outlook, prices reflected what someone else might pay in a

week, or a minute, for their chance to make a profit in the same way. Another problem with the speculative boom was that

when people bought stock they usually bought it on margin. This meant that you only paid 40% of the value of the stock. The

broker got the rest of the money on credit, which you paid back when you sold the stock. If your stock’s value fell below the

breakeven point for the broker, he would either sell the stock, and take a loss, or ask you for more money. What all this meant

was that banks were indirectly, and sometimes directly, investing their depositors’ money in the stock market.

Generally the largest cause for the crash of 1929, and therefore the depression, was the fact that the stock market boom

was based on confidence, not actual reality. If investors lost confidence in the market’s ability to turn a profit the whole system

would come crashing down. Instead of being based on confidence, a crash would be based on fear.

During the summer of 1929 many warning signs of the impending crash were noticed. However, these signs were

generally ignored because most investors believed there was no way the market could crash. The one strong response to the

warning signs was when the Federal Reserve raised interest rates to 6%. However, this had little effect because banks could

still make 12% in stocks, an incredible profit margin.

October 24, 1929 is now remembered as “Black Thursday.” On this day the whole US financial system came tumbling

down. Investors lost all confidence in the value of their stocks and tried to sell at lower and lower prices. Some couldn’t find

buyers at any price. The ticker tape, which allowed those not in the actual exchange to know prices, ran two hours behind.

In response to the crash a group of incredibly wealthy bankers, whose personal fortunes totaled more than $300 million,

met to try and calm the people and stop the panic. They bought stocks at much higher prices than the going rate, calming and

stabilizing the exchange. However, since the ticker tape was running several hours behind, sell orders continued to pour in from

across the country. On “Black Thursday” the New York Stock Exchange alone lost $4 billion dollars. The magazine Variety

memorably summed up the crash with the headline, “Wall Street Lays an Egg.”

On the next day, Friday, prices remain relatively stable as investors tried to take stock of the situation. However, this did

not last. The next Monday, although trading was less, the market fell still further. “Black Tuesday,” October 29, proved even

more fruitless. The bankers that had tried to stop the crash were now selling. It was the worst day in the market’s 112-year

history.