What Caused the 1929 Stock Market Crash?
During the 1920s, the U.S. stock market underwent rapid expansion, reaching its peak in August 1929 after a period of wild speculation in the Roaring Twenties. By then, production had already declined and unemployment had risen, leaving stocks in great excess of their real value.
Among the other causes of the stock market crash of 1929 were low wages, the proliferation of debt, a struggling agricultural sector and an excess of large bank loans that could not be liquidated.
Did you know? The New York Stock Exchange was founded in 1817, although its origins date back to 1792 when a group of stockbrokers and merchants signed an agreement under a buttonwood tree on Wall Street.
Black Tuesday
Stock prices began to decline in September and early October 1929, and on October 18 a big drop in stock prices began. Panic soon set in, and on October 24, Black Thursday, a record 12,894,650 shares were traded. Investment companies and leading bankers attempted to stabilize the market by buying up great blocks of stock, producing a moderate rally on Friday.
On Monday, however, the storm broke anew, and the market went into free fall. Black Monday was followed by Black Tuesday—October 29, 1929—during which stock prices collapsed completely and 16,410,030 shares were traded on the New York Stock Exchange in a single day. Billions of dollars were lost, wiping out thousands of investors, and stock tickers ran hours behind because the machinery could not handle the tremendous volume of trading.
Effects of the 1929 Stock Market Crash: The Great Depression
After October 29, 1929, stock prices had nowhere to go but up, so there was considerable recovery during succeeding weeks. Overall, however, prices continued to drop as the United States slumped into the Great Depression, and by 1932 stocks were worth only about 20 percent of their value in the summer of 1929.
The stock market crash of 1929 was not the sole cause of the Great Depression, but it did act to accelerate the global economic collapse of which it was also a symptom. Stock prices continued to drop through 1932, when the Dow Jones Industrial Average—a widely-used benchmark for blue-chip stocks in the United States—closed at 41.22, its lowest value of the 20th century, 89 percent below its peak.
By 1933, nearly half of America’s banks had failed, and unemployment was approaching 15 million people, or 30 percent of the U.S. workforce. The Dow Jones Industrial Average would not return to its pre-1929 heights until November of 1954, about 25 years later.
African Americans were particularly hard hit, as they were the “last hired, first fired.” Women during the Great Depression fared slightly better, as traditionally female jobs of the era like teaching and nursing were more insulated than those dependent on fluctuating markets.
Life for the average family during the Great Depression was difficult. Storms and a severe drought in the Southern Plains ruined crops, causing the area to be nicknamed the Dust Bowl. “Okies,” as fleeing residents were called, moved to big cities looking for work.
Did you know? The Great Depression helped bring an end to Prohibition. Politicians believed legalizing the consumption of alcohol could help create jobs and stimulate the economy.
The relief and reform measures in the New Deal programs enacted by the administration of President Franklin D. Roosevelt helped lessen the worst effects of the Great Depression; however, the U.S. economy would not fully turn around until after 1939, when World War II revitalized American industry.
READ MORE: Did New Deal Programs Help End the Great Depression?
