Factors Leading to Stock Market Crash

Whatever the economic, social and/or political lessons to be learned from the events of the 1920s which resulted in the crash of 1929, Galbraith makes clear the moral lesson: "It is that very specific and personal misfortune awaits those who presume to believe that the future is revealed to them." The almost continuous prosperity of the decade of the 1920s persuaded those on Wall Street that the future held more of the same endless profit-taking.

The general cause of the crash most frequently mentioned in the sources consulted for this study is the "speculative orgy" of the financial community in the 1920s. At the heart of this rampant exercise of speculation was the chance to buy stock on margin. One could buy stocks on credit, using as collateral the ownership of the stock. In addition, Yee lists some of the more specific causes:

1. Many stocks were overpriced, that is, the worth of what th

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ct that 'the economy was fundamentally unsound.'" For example, Zinn notes: very unhealthy corporate and banking structures, an unsound foreign trade, much economic misinformation, and the 'bad distribution of income' (the highest 5 percent of the population received about one-third of all personal income). Galbraith writes that in a "boom" period such as the 1920s, in which wealth is increasing for participants---individual and corporate---in the stock market, the government will be hesitant to become involved, and this held true in the 1920s. No safeguards were in place to protect against a crash, as they are today. One criticism of Galbraith's book is that he analyzes the stock market crash not as if it were a natural and inevitable part of the greed of the capitalist system, but as if it were an aberration which could have been prevented with a dose of realism and honesty in the years leading up to the crash. As Zinn writes, A socialist critic would go further and say that the capitalist system was by its nature unsound: a system driven by the one overriding motive of corporate profit and therefore unstable, unpredictable, and blind to human needs. . . . Capitalism, despite its attempts at self-reform, its organiza
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Approximate Word count = 1749
Approximate Pages = 7 (250 words per page)

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