Wall Street Crash and Economic Depression

The Wall Street Crash

In October 1929 share prices began to fall on the stock exchange (located on Wall Street) in New York. This meant that people’s investments fell in value, and so they rushed to sell their shares before they fell even further. If everyone is just selling their shares and nobody has the confidence to buy any, then the prices just plummet further. Investors lost as much as $4000 million dollars within one week.

Economic Depression

This is a sustained period of time in which a country’s economy is not producing as much as it used to, businesses start to fail, and unemployment is rises.

There was a worldwide economic crisis which started with the Wall Street Crash in 1929 and became known as The Great Depression.

Impact on Germany

Banks (including those in Germany) invested people’s money in shares (that’s how banks can pay people interest on their savings) and therefore lost huge amounts of money. People in Germany worried they would lose the money they had saved in the banks and rushed all at once to get their money back out. Banks aren’t set up to be able to pay EVERY person’s money back that saves with them AT THE SAME time and without much advance notice. Some banks ran out of money to give people.

Thanks to Stresemann, the German economy was dependent on huge loans from America. American banks had invested in German businesses under the Dawes plan. American investment in German businesses ended almost immediately. Furthermore, American banks needed the money back that they had lent to German businesses and began recalling loans. This caused German companies to close, German industrial output to fall and unemployment to increase.

The economic crisis was felt worldwide. The price of food and raw materials declined because other countries were not importing as many of these goods. This meant that German businesses that relied on exporting their goods to other countries were losing business. The knock-on effect was that high unemployment in Germany meant that domestic demand for goods also fell. People couldn’t pay for a roof over their heads nor food on the table. The middle classes lost their savings, companies and homes

People demanded political action but the Weimar government failed to do anything to sort out people’s suffering. A new chancellor for the Weimar Republic, Heinrich Brüning (appointed 1930) proposed a raise in taxes and a reduction in unemployment benefit. This pleased no one. Right wing parties, the middle classes and the wealthy opposed higher taxes. Left wing parties and the working classes opposed lower benefits. Brüning’s government depended on a coalition of parties and this coalition collapsed in 1930.

The causes of people’s suffering were beyond government control and the problems continued. Unemployed people roamed the streets and some joined the private armies of political parties. People turned to extreme political parties. Political violence became common in Germany once again. Brüning lost control and resigned in 1932.

The Nazi party (NSDAP) took advantage of the situation and grew more powerful

The governments during the Weimar Republic rarely lasted a year. There were seven key parties and several smaller parties. Votes were usually scattered amongst them, with no one party getting a true majority. This meant that the government was run by coalitions (two parties agreeing to work together in order to hold a majority). Unfortunately, the parties rarely agreed with each other for long, and so new elections had to be called to try and secure new governments all the time.