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The USA, c1920–55: Boom, Bust and Recovery

Causes of the crash of 1929

  • 3 things to know
  • Paper 2

Overview

Recall questions on overproduction and weak farm incomes, the bull market and buying on the margin, the Florida land boom, banking weakness, and why the Crash became a depression.

What you need to know

Answer each one before you reveal it.

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Key term

What caused the Wall Street Crash of 1929?

Who and when

What was overproduction and why did it matter?

Numbers

What was the bull market of the late 1920s?

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    What caused the Wall Street Crash of 1929?

    Model answer

    Overproduction, reckless speculation on a rising market bought 'on margin', and a weak banking system, causing share prices to collapse.

  2. 2

    What was overproduction and why did it matter?

    Model answer

    Industry and agriculture produced more than the domestic market could absorb at existing incomes, and tariffs and war debts closed foreign outlets.

  3. 3

    What was the bull market of the late 1920s?

    Model answer

    A sustained rise in share prices driven by speculation rather than earnings, with the Dow more than doubling between 1926 and September 1929.

  4. 4

    What was buying on the margin?

    Model answer

    Purchasing shares with as little as ten per cent down and the rest borrowed from brokers, which multiplied gains and, when prices fell, multiplied losses.

  5. 5

    What was the Florida land boom?

    Model answer

    The speculative frenzy in Florida real estate in the mid-1920s, which collapsed in 1926 after hurricanes, an early warning about speculation that was ignored.

  6. 6

    How weak was the American banking system?

    Model answer

    Highly fragmented, with thousands of small unit banks, no deposit insurance and little regulation, so a local failure could destroy depositors' savings.

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