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• Wheat is a staple commodity and dietary basic.
• It has an inelastic demand, and price variations are incumbent on supply.
• During WW1 the Inner Zone becomes Isolated from the Outer Zone. There is a interrupted by Word War 1
• There is a deficit in wheat (and agricultural products) production was made up for in the West from the US, Argentina, and Canada.
• By 1919, wheat prices are at an all time high. American farmers are making very high profits. They want to increase their profit so they:
  • 1. Buy more land, so land prices increase, and lands tend to be marginal. The yield of marginal yield is of low profitability.
  • 2. Mechanize farming with tractors and other equipment
  • 3. These two strategies were facilitated by Bank loans as collateral
• By 1922 the European wheat production had assumed 1913 levels with commensurate decrease in wheat price.
• US Farmers struggle to pay their loans, so they plant more wheat (they didn't have quotas)
• The increase in supply drops prices further (in 1928 it hits a peak) and the loans go bad
• Banks become unstable with the number of bad loans collateral lands of lowering value
• The US Banks begin to invest more heavily in Stock Market. The Bank demand makes stock prices artificially high due to demand
• People purchase stocks in the 1920s from banks on the margin. They pay 15% down on value of stock and borrow the rest from the bank and the stocks themselves serve as collateral.
• On October 29, 1929 there is a panic, so they sell off stock, the bank fails, and we have to recall loans and bonds from the Europeans.