The stock market crash essay about stock market in the Great Depression. Capital is the tools needed to produce things of value out of raw materials. Buildings and machines are common examples of capital. A factory is a building with machines for making valued goods.
Throughout the twentieth century, most of the capital in the United States was represented by stocks. Ownership of the corporation in turn took the form of shares of stock. Each share of stock represented a proportionate share of the corporation. The stocks were bought and sold on stock exchanges, of which the most important was the New York Stock Exchange located on Wall Street in Manhattan. Throughout the 1920s a long boom took stock prices to peaks never before seen. From 1920 to 1929 stocks more than quadrupled in value. Many investors became convinced that stocks were a sure thing and borrowed heavily to invest more money in the market.
But in 1929, the bubble burst and stocks started down an even more precipitous cliff. This had sharp effects on the economy. Demand for goods declined because people felt poor because of their losses in the stock market. But perhaps the most important effect was chaos in the banking system as banks tried to collect on loans made to stockmarket investors whose holdings were now worth little or nothing at all. Worse, many banks had themselves invested depositors’ money in the stockmarket. When word spread that banks’ assets contained huge uncollectable loans and almost worthless stock certificates, depositors rushed to withdraw their savings.
Unable to raise fresh funds from the Federal Reserve System, banks began failing by the hundreds in 1932 and 1933. By the inauguration of Franklin D. Roosevelt as president in March 1933, the banking system of the United States had largely ceased to function. 140 billion disappear when their banks failed. Businesses could not get credit for inventory. Checks could not be used for payments because no one knew which checks were worthless and which were sound.