IB History Political and Economic Causes Notes

Background

1. By the late 1920s, the economies of the Americas appeared prosperous, but that prosperity rested on unstable foundations: speculation, unequal wealth, overproduction, and overreliance on the U.S. market.
2. When the Wall Street Crash of October 1929 struck, it exposed structural weaknesses and interdependence across the hemisphere.
3. The result was an economic collapse that reshaped governments, policies, and ideologies from Washington to Buenos Aires.

Economic Causes

Overproduction and Falling Demand

1. Agricultural Overproduction
   1. Mechanized farming in the U.S. and Canada increased output beyond what domestic and foreign markets could absorb.
   2. Prices for wheat, cotton, coffee, and sugar fell dramatically, eroding rural incomes.
   3. In Latin America, export-based economies (Brazil’s coffee, Argentina’s wheat, Cuba’s sugar) faced similar gluts as world prices plummeted.
2. Industrial Overproduction
   1. U.S. factories produced cars, radios, and consumer goods faster than average workers could afford.
   2. Corporate profits soared, but wages lagged, creating underconsumption amid apparent prosperity.

Financial Speculation and Stock Market Instability

1. Speculative Boom
   1. Investors bought stocks on margin, paying only 10% upfront and borrowing the rest, inflating prices far beyond real value.
   2. By 1929, U.S. stock prices had risen 400% since 1924, with little connection to actual profits.
2. Wall Street Crash (October 1929)
   1. When confidence collapsed, panic selling began on Black Tuesday (October 29, 1929), wiping out billions in hours.
   2. The crash destroyed banks that had heavily invested in or lent against overvalued stocks, triggering a chain reaction across industries and borders.