What were the Causes & Consequences of the Wall Street Crash?

Cambridge (CIE) IGCSE History

What were the Causes & Consequences of the Wall Street Crash?

The Big Idea: In October 1929, a decade of reckless share-buying on credit finally caught up with America — the stock market collapsed, and that single financial event dragged the entire US economy (and eventually its politics) into a decade-long depression.

Summary — The Whole Chapter in One Scroll

• Speculation — Americans in the 1920s bought shares hoping to sell them for profit, often "on the margin" (borrowed money).
• The Crash — In October 1929, panic selling collapsed share prices, wiping out fortunes almost overnight.
• Economic impact — Businesses closed, banks collapsed, industrial and car production plunged, farmers lost land.
• Social impact — Mass unemployment, homelessness, Hoovervilles, the Dust Bowl migration, and worsened discrimination against Black Americans and immigrants.
• Political impact — Hoover's "do-nothing" laissez-faire response (and his violent treatment of the Bonus Marchers) made him deeply unpopular, letting Franklin D. Roosevelt win the 1932 election in a landslide.

1. Speculation & the Wall Street Crash

📈 What is "speculation"?

Think of speculation like buying a football sticker album when the stickers are cheap, purely because you're betting that in a year they'll be worth loads more — not because you actually care about the stickers. That's exactly what people were doing with shares in the 1920s. Speculation means buying something (in this case, a share in a company) purely because you expect its value to rise, so you can sell it later for a profit.

Throughout the 1920s, the US economy boomed and share prices kept climbing. This created a dangerous psychology: everyone assumed prices would keep rising forever, so more and more ordinary working-class people — not just rich bankers — piled into the stock market hoping to get rich quick.

⚠️ Buying "on the margin" — the real danger

Here's the part that actually caused the disaster. Many people didn't even have enough cash to buy shares outright. Instead, they bought "on the margin": they paid only about 10% of a share's price themselves and borrowed the rest from a bank or broker, gambling that the share's value would rise high enough to pay back the loan and still leave a profit.

This is exactly like buying a £1,000 phone by paying £100 deposit and borrowing £900 — except you're betting the phone will magically become worth £1,500 before the repayment is due. If its value falls instead, you're stuck owing money for something now worth less than your debt. Multiply that by millions of Americans, and you can see how fragile the whole system was.

Key Rule to Remember Speculation + buying "on the margin" = a stock market built on borrowed confidence, not real value. The moment confidence cracks, the whole system collapses at once.

🧩 Why the US economy started to slow down in 1929

A crash needs a trigger. By 1929, cracks were already forming underneath the boom:

2. What Impact Did the Crash Have on the Economy?

disaster

🏭 Impact on businesses

• three years
• 45%
• 80%

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