causes of the stock market crash of 1929 assignment

What Caused the Stock Market Crash of 1929—And What We Still Get Wrong About It

B y the end of Thursday, Oct. 24, 1929, the New York Stock Exchange had rebounded from the 10% dip that the market had taken earlier that day. But then stocks plummeted again the following Monday, Oct. 28, and Tuesday, Oct. 29, saw similar drops. The stock market would continue to tumble for the next few weeks.

“For so many months so many people had saved money and borrowed money and borrowed on their borrowings to possess themselves of the little pieces of paper by virtue of which they became partners in U. S. Industry,” TIME wrote of the mood on that first frightening day. “Now they were trying to get rid of them even more frantically than they had tried to get them.”

In retrospect, the Wall Street crashes of late October 1929 — now known as Black Thursday, Black Monday and Black Tuesday — have often been seen as the beginning of what would become the Great Depression. But just as there was a lot of confusion back then about what was going on, there is still confusion about the effect Black Thursday had on the economy in the years that followed. For the 90th anniversary of Black Thursday, TIME spoke to financial historian Richard Sylla, a Professor Emeritus of Economics and the former Henry Kaufman Professor of the History of Financial Institutions and Markets at New York University Stern School of Business and Chairman of the board of the Museum of American Finance in New York City.

TIME: What actually happened on Black Thursday?

SYLLA: Black Thursday was interesting because the market crashed during the day, but by the end of the day it came back — because of an intervention by the bankers to protect their wealthy clients, as well as to try to counter the panic. The buying was done by Richard Whitney, who represented a pool of money from people like the House of Morgan. [They thought] there’s panic selling, but they can stop the panic by going in and buying stock. So he started buying left and right, and he reversed the crash and restored the market to almost pre-Black Thursday levels. But when stocks fell more than 10% on both the following Monday and Tuesday, the market crashed without coming back. In about two weeks’ time, stocks lost about a third of their value.

What led to the crash?

There is a famous story, we don’t know if it’s true, about how in the late summer of 1929, a shoe-shine boy gave Joe Kennedy stock tips, and Kennedy, being a wise old investor, thought, “ If shoe shine boys are giving stock tips, then it’s time to get out of the market.” So the story says Joe Kennedy sold all of his stocks and made a killing, and maybe that’s the beginning of the fortune that made JFK president three decades later. The fact that the market had fallen 10% before the bankers intervened made other people wary of the market and probably they’re the ones who started selling the following Monday and Tuesday. [And] easy money is good for the stock market, which is fairly true. The Federal Reserve in the summer of 1929 was worried about the excess of speculation so they actually did a tightening at the beginning of September.

The 1920s were a period of great prosperity. I used to compare it to my students to the 1990s. It was a prosperous decade, but there was an economic slowdown at the end of the decade, a recession that had started in the second half of 1929. But the economy then was used to having recessions every two or three years, so there’s no reason why that recession had to turn into a Great Depression.

What do people tend to get wrong about the 1929 stock market crash?

The great myth is that the stock market crash caused the Great Depression. This is part of every schoolkid’s learning in social studies, but financial historians don’t think the evidence is very strong for that. The crash occurred in late October and early November of 1929. If you go from Black Thursday to Good Friday 1930, which was in the middle of April, the stock market was back up to just about the same level [as before]. People ignore the fact that the stock market had a strong recovery after the crash because it’s inconvenient for the story.

So what was the real story? The banks extended too many bad loans; the banks were speculating too much. Milton Friedman and Anna J. Schwartz’s book A Monetary History of the United States, 1867–1960 pointed out there was no connection between the 1929 Wall Street crash and the Great Depression. The Great Depression really began when the banks started failing in 1930, and then there were more bank failures in 1931 and 1932, leading to a bank holiday when FDR became president in ’33. We didn’t have deposit insurance back then, so when the banks shut down, people lost their money. A bank fails when its assets become less than its liabilities and when people don’t repay their loans. The Federal Reserve as a central bank can lend money and stop that run on a bank, but if a bank is insolvent, it’s just going to belly up. There was a contagion when a few big banks failed in New York City, then other people got worried and drew their money out of banks. The 1929 stock market crash didn’t help, but for some reason it’s come down to us that the stock market crash started the Depression when there’s a lot of evidence against that theory.

What kind of steps were taken to try to prevent a repeat of Black Thursday?

The big reforms came in the New Deal with the Securities and Exchange Commission, which regulated the stock market more, but it didn’t prevent crashes because we had a crash in 1987. After the 1987 crash , if the market fell real fast on a given day, circuit breakers would shut it down until people had time to think about what was going on.

Were any lessons from the 1929 crash implemented in the 2008-2009 downturn?

After Lehman Brothers failed [in 2008], the Federal Reserve’s interventions added a lot of liquidity to the economy that supported the stock market. It turns out Ben Bernanke had studied the 1930s , and he happened to be the right man in the right place at the right time [as Federal Reserve chairman] in ’08 and ’09 so he didn’t make the mistake that was made in ’30s. We might have had another Great Depression if the Fed hadn’t done what it did.

Have any mistakes from that time been repeated?

A big question that hasn’t been resolved by economics and financial regulators is just when should the regulators intervene to try to slow things down. One view is they’re not smart enough to know there’s going to be trouble, so wait until the trouble happens and then react. Other people say try to intervene and cool off the speculation before you have a major stock market crash or banking crisis. I don’t think the verdict is in on that particular discussion yet.

On the 90th anniversary of the 1929 Wall Street crash, what should we keep in mind specifically for 2019?

One similarity is that the market has been going up basically since 2009, so it’s been going up for 10 years, and of course it went up most of the time in the 1920s. People are saying today that stocks seem to be overvalued and they’re supported by extremely low interest rates; credit was kind of cheap in the 1920s until the Federal Reserve tightened. Now the Federal Reserve doesn’t seem to be tightening. In fact, when the stock market fell a lot last year, that was because the Federal Reserve was tightening, and now early this year they said they weren’t going to tighten that much anymore and the stock market came back.

I think one difference is that in 1929 people were gung-ho on the stock market before the crash. Today I see there is a lot of skepticism. For everyone who says the market is great, there are a lot of respected people who say it’s overvalued. That probably means we won’t have another great crash.

We’ve talked about some particular examples of financial crises, but these things have been going on periodically. Some people say the reason these things happen over and over again is that people do tend to forget that they can happen. Hardly anyone working now on Wall Street remembers the crash of 1987, and some people claim that the recent Great Recession was because there was no one around who remembered 1929. It’s just the nature of life. I tell people on Wall Street: study more financial history, so you can protect yourself when you realize something bad is coming. But in general, the financial community doesn’t pay nearly as much attention to history as it should.

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Brother, Can You Spare a Dime? The Great Depression, 1929-1932

The Stock Market Crash of 1929

OpenStaxCollege

[latexpage]

Learning Objectives

By the end of this section, you will be able to:

Identify the causes of the stock market crash of 1929
Assess the underlying weaknesses in the economy that resulted in America’s spiraling from prosperity to depression so quickly
Explain how a stock market crash might contribute to a nationwide economic disaster

A timeline shows important events of the era. In 1929, Hoover is inaugurated as president, the stock market crashes, and the Great Depression begins; photographs of Hoover (top) and the crowds on Wall Street on Black Tuesday (bottom) are shown. In 1930, the Dust Bowl results from severe drought conditions and poor farming practices; a photograph of several Great Plains houses is shown, with a massive dust cloud overhead. In 1931, the Scottsboro Boys trial begins in Alabama; a photo of one of the defendants, Haywood Patterson, is shown alongside a photo of the Jackson County Courthouse. In 1932, Hoover forms the Reconstruction Finance Corporation, the Bonus Army riot breaks out in Washington, and Roosevelt is elected president; photographs of the burning Bonus Army encampments (top) and Roosevelt (bottom) are shown.

Herbert Hoover became president at a time of ongoing prosperity in the country. Americans hoped he would continue to lead the country through still more economic growth, and neither he nor the country was ready for the unraveling that followed. But Hoover’s moderate policies, based upon a strongly held belief in the spirit of American individualism, were not enough to stem the ever-growing problems, and the economy slipped further and further into the Great Depression.

While it is misleading to view the stock market crash of 1929 as the sole cause of the Great Depression, the dramatic events of that October did play a role in the downward spiral of the American economy. The crash, which took place less than a year after Hoover was inaugurated, was the most extreme sign of the economy’s weakness. Multiple factors contributed to the crash, which in turn caused a consumer panic that drove the economy even further downhill, in ways that neither Hoover nor the financial industry was able to restrain. Hoover, like many others at the time, thought and hoped that the country would right itself with limited government intervention. This was not the case, however, and millions of Americans sank into grinding poverty.

THE EARLY DAYS OF HOOVER’S PRESIDENCY

Upon his inauguration, President Hoover set forth an agenda that he hoped would continue the “Coolidge prosperity” of the previous administration. While accepting the Republican Party’s presidential nomination in 1928, Hoover commented, “Given the chance to go forward with the policies of the last eight years, we shall soon with the help of God be in sight of the day when poverty will be banished from this nation forever.” In the spirit of normalcy that defined the Republican ascendancy of the 1920s, Hoover planned to immediately overhaul federal regulations with the intention of allowing the nation’s economy to grow unfettered by any controls. The role of the government, he contended, should be to create a partnership with the American people, in which the latter would rise (or fall) on their own merits and abilities. He felt the less government intervention in their lives, the better.

Yet, to listen to Hoover’s later reflections on Franklin Roosevelt’s first term in office, one could easily mistake his vision for America for the one held by his successor. Speaking in 1936 before an audience in Denver, Colorado, he acknowledged that it was always his intent as president to ensure “a nation built of home owners and farm owners. We want to see more and more of them insured against death and accident, unemployment and old age,” he declared. “We want them all secure.” 1 Such humanitarianism was not uncommon to Hoover. Throughout his early career in public service, he was committed to relief for people around the world. In 1900, he coordinated relief efforts for foreign nationals trapped in China during the Boxer Rebellion. At the outset of World War I, he led the food relief effort in Europe, specifically helping millions of Belgians who faced German forces. President Woodrow Wilson subsequently appointed him head of the U.S. Food Administration to coordinate rationing efforts in America as well as to secure essential food items for the Allied forces and citizens in Europe.

Hoover’s first months in office hinted at the reformist, humanitarian spirit that he had displayed throughout his career. He continued the civil service reform of the early twentieth century by expanding opportunities for employment throughout the federal government. In response to the Teapot Dome Affair, which had occurred during the Harding administration, he invalidated several private oil leases on public lands. He directed the Department of Justice, through its Bureau of Investigation, to crack down on organized crime, resulting in the arrest and imprisonment of Al Capone. By the summer of 1929, he had signed into law the creation of a Federal Farm Board to help farmers with government price supports, expanded tax cuts across all income classes, and set aside federal funds to clean up slums in major American cities. To directly assist several overlooked populations, he created the Veterans Administration and expanded veterans’ hospitals, established the Federal Bureau of Prisons to oversee incarceration conditions nationwide, and reorganized the Bureau of Indian Affairs to further protect Native Americans. Just prior to the stock market crash, he even proposed the creation of an old-age pension program, promising fifty dollars monthly to all Americans over the age of sixty-five—a proposal remarkably similar to the social security benefit that would become a hallmark of Roosevelt’s subsequent New Deal programs. As the summer of 1929 came to a close, Hoover remained a popular successor to Calvin “Silent Cal” Coolidge, and all signs pointed to a highly successful administration.

THE GREAT CRASH

The promise of the Hoover administration was cut short when the stock market lost almost one-half its value in the fall of 1929, plunging many Americans into financial ruin. However, as a singular event, the stock market crash itself did not cause the Great Depression that followed. In fact, only approximately 10 percent of American households held stock investments and speculated in the market; yet nearly a third would lose their lifelong savings and jobs in the ensuing depression. The connection between the crash and the subsequent decade of hardship was complex, involving underlying weaknesses in the economy that many policymakers had long ignored.

What Was the Crash?

To understand the crash, it is useful to address the decade that preceded it. The prosperous 1920s ushered in a feeling of euphoria among middle-class and wealthy Americans, and people began to speculate on wilder investments. The government was a willing partner in this endeavor: The Federal Reserve followed a brief postwar recession in 1920–1921 with a policy of setting interest rates artificially low, as well as easing the reserve requirements on the nation’s largest banks. As a result, the money supply in the U.S. increased by nearly 60 percent, which convinced even more Americans of the safety of investing in questionable schemes. They felt that prosperity was boundless and that extreme risks were likely tickets to wealth. Named for Charles Ponzi, the original “Ponzi schemes” emerged early in the 1920s to encourage novice investors to divert funds to unfounded ventures, which in reality simply used new investors’ funds to pay off older investors as the schemes grew in size. Speculation , where investors purchased into high-risk schemes that they hoped would pay off quickly, became the norm. Several banks, including deposit institutions that originally avoided investment loans, began to offer easy credit, allowing people to invest, even when they lacked the money to do so. An example of this mindset was the Florida land boom of the 1920s: Real estate developers touted Florida as a tropical paradise and investors went all in, buying land they had never seen with money they didn’t have and selling it for even higher prices.

Advertising offers a useful window into the popular perceptions and beliefs of an era. By seeing how businesses were presenting their goods to consumers, it is possible to sense the hopes and aspirations of people at that moment in history. Maybe companies are selling patriotism or pride in technological advances. Maybe they are pushing idealized views of parenthood or safety. In the 1920s, advertisers were selling opportunity and euphoria, further feeding the notions of many Americans that prosperity would never end.

In the decade before the Great Depression, the optimism of the American public was seemingly boundless. Advertisements from that era show large new cars, timesaving labor devices, and, of course, land. This advertisement for California real estate illustrates how realtors in the West, much like the ongoing Florida land boom, used a combination of the hard sell and easy credit ( [link] ). “Buy now!!” the ad shouts. “You are sure to make money on these.” In great numbers, people did. With easy access to credit and hard-pushing advertisements like this one, many felt that they could not afford to miss out on such an opportunity. Unfortunately, overspeculation in California and hurricanes along the Gulf Coast and in Florida conspired to burst this land bubble, and would-be millionaires were left with nothing but the ads that once pulled them in.

An advertisement shows a bird’s-eye drawing of large land tracts in Los Angeles, with the city spread out in the distance. The text contains information about the potential real estate opportunity, as well as large-print slogans, entreating potential customers to “BUY NOW!!! Come Out Tomorrow.” Other language assures customers that “You Are Sure to Make Money on These” and that the land is “Close In—Not Away Out in the Country.”

The Florida land boom went bust in 1925–1926. A combination of negative press about the speculative nature of the boom, IRS investigations into the questionable financial practices of several land brokers, and a railroad embargo that limited the delivery of construction supplies into the region significantly hampered investor interest. The subsequent Great Miami Hurricane of 1926 drove most land developers into outright bankruptcy. However, speculation continued throughout the decade, this time in the stock market. Buyers purchased stock “on margin”—buying for a small down payment with borrowed money, with the intention of quickly selling at a much higher price before the remaining payment came due—which worked well as long as prices continued to rise. Speculators were aided by retail stock brokerage firms, which catered to average investors anxious to play the market but lacking direct ties to investment banking houses or larger brokerage firms. When prices began to fluctuate in the summer of 1929, investors sought excuses to continue their speculation. When fluctuations turned to outright and steady losses, everyone started to sell. As September began to unfold, the Dow Jones Industrial Average peaked at a value of 381 points, or roughly ten times the stock market’s value, at the start of the 1920s.

Several warning signs portended the impending crash but went unheeded by Americans still giddy over the potential fortunes that speculation might promise. A brief downturn in the market on September 18, 1929, raised questions among more-seasoned investment bankers, leading some to predict an end to high stock values, but did little to stem the tide of investment. Even the collapse of the London Stock Exchange on September 20 failed to fully curtail the optimism of American investors. However, when the New York Stock Exchange lost 11 percent of its value on October 24—often referred to as “Black Thursday”—key American investors sat up and took notice. In an effort to forestall a much-feared panic, leading banks, including Chase National, National City, J.P. Morgan, and others, conspired to purchase large amounts of blue chip stocks (including U.S. Steel) in order to keep the prices artificially high. Even that effort failed in the growing wave of stock sales. Nevertheless, Hoover delivered a radio address on Friday in which he assured the American people, “The fundamental business of the country . . . is on a sound and prosperous basis.”

As newspapers across the country began to cover the story in earnest, investors anxiously awaited the start of the following week. When the Dow Jones Industrial Average lost another 13 percent of its value on Monday morning, many knew the end of stock market speculation was near. The evening before the infamous crash was ominous. Jonathan Leonard, a newspaper reporter who regularly covered the stock market beat, wrote of how Wall Street “lit up like a Christmas tree.” Brokers and businessmen who feared the worst the next day crowded into restaurants and speakeasies (a place where alcoholic beverages were illegally sold). After a night of heavy drinking, they retreated to nearby hotels or flop-houses (cheap boarding houses), all of which were overbooked, and awaited sunrise. Children from nearby slums and tenement districts played stickball in the streets of the financial district, using wads of ticker tape for balls. Although they all awoke to newspapers filled with predictions of a financial turnaround, as well as technical reasons why the decline might be short-lived, the crash on Tuesday morning, October 29, caught few by surprise.

No one even heard the opening bell on Wall Street that day, as shouts of “Sell! Sell!” drowned it out. In the first three minutes alone, nearly three million shares of stock, accounting for $2 million of wealth, changed hands. The volume of Western Union telegrams tripled, and telephone lines could not meet the demand, as investors sought any means available to dump their stock immediately. Rumors spread of investors jumping from their office windows. Fistfights broke out on the trading floor, where one broker fainted from physical exhaustion. Stock trades happened at such a furious pace that runners had nowhere to store the trade slips, and so they resorted to stuffing them into trash cans. Although the stock exchange’s board of governors briefly considered closing the exchange early, they subsequently chose to let the market run its course, lest the American public panic even further at the thought of closure. When the final bell rang, errand boys spent hours sweeping up tons of paper, tickertape, and sales slips. Among the more curious finds in the rubbish were torn suit coats, crumpled eyeglasses, and one broker’s artificial leg. Outside a nearby brokerage house, a policeman allegedly found a discarded birdcage with a live parrot squawking, “More margin! More margin!”

On Black Tuesday , October 29, stock holders traded over sixteen million shares and lost over $14 billion in wealth in a single day. To put this in context, a trading day of three million shares was considered a busy day on the stock market. People unloaded their stock as quickly as they could, never minding the loss. Banks, facing debt and seeking to protect their own assets, demanded payment for the loans they had provided to individual investors. Those individuals who could not afford to pay found their stocks sold immediately and their life savings wiped out in minutes, yet their debt to the bank still remained ( [link] ).

A photograph shows large crowds of people on Wall Street.

The financial outcome of the crash was devastating. Between September 1 and November 30, 1929, the stock market lost over one-half its value, dropping from $64 billion to approximately $30 billion. Any effort to stem the tide was, as one historian noted, tantamount to bailing Niagara Falls with a bucket. The crash affected many more than the relatively few Americans who invested in the stock market. While only 10 percent of households had investments, over 90 percent of all banks had invested in the stock market. Many banks failed due to their dwindling cash reserves. This was in part due to the Federal Reserve lowering the limits of cash reserves that banks were traditionally required to hold in their vaults, as well as the fact that many banks invested in the stock market themselves. Eventually, thousands of banks closed their doors after losing all of their assets, leaving their customers penniless. While a few savvy investors got out at the right time and eventually made fortunes buying up discarded stock, those success stories were rare. Housewives who speculated with grocery money, bookkeepers who embezzled company funds hoping to strike it rich and pay the funds back before getting caught, and bankers who used customer deposits to follow speculative trends all lost. While the stock market crash was the trigger, the lack of appropriate economic and banking safeguards, along with a public psyche that pursued wealth and prosperity at all costs, allowed this event to spiral downward into a depression.

causes of the stock market crash of 1929 assignment

The National Humanities Center has brought together a selection of newspaper commentary from the 1920s, from before the crash to its aftermath. Read through to see what journalists and financial analysts thought of the situation at the time.

Causes of the Crash

The crash of 1929 did not occur in a vacuum, nor did it cause the Great Depression. Rather, it was a tipping point where the underlying weaknesses in the economy, specifically in the nation’s banking system, came to the fore. It also represented both the end of an era characterized by blind faith in American exceptionalism and the beginning of one in which citizens began increasingly to question some long-held American values. A number of factors played a role in bringing the stock market to this point and contributed to the downward trend in the market, which continued well into the 1930s. In addition to the Federal Reserve’s questionable policies and misguided banking practices, three primary reasons for the collapse of the stock market were international economic woes, poor income distribution, and the psychology of public confidence.

After World War I, both America’s allies and the defeated nations of Germany and Austria contended with disastrous economies. The Allies owed large amounts of money to U.S. banks, which had advanced them money during the war effort. Unable to repay these debts, the Allies looked to reparations from Germany and Austria to help. The economies of those countries, however, were struggling badly, and they could not pay their reparations, despite the loans that the U.S. provided to assist with their payments. The U.S. government refused to forgive these loans, and American banks were in the position of extending additional private loans to foreign governments, who used them to repay their debts to the U.S. government, essentially shifting their obligations to private banks. When other countries began to default on this second wave of private bank loans, still more strain was placed on U.S. banks, which soon sought to liquidate these loans at the first sign of a stock market crisis.

Poor income distribution among Americans compounded the problem. A strong stock market relies on today’s buyers becoming tomorrow’s sellers, and therefore it must always have an influx of new buyers. In the 1920s, this was not the case. Eighty percent of American families had virtually no savings, and only one-half to 1 percent of Americans controlled over a third of the wealth. This scenario meant that there were no new buyers coming into the marketplace, and nowhere for sellers to unload their stock as the speculation came to a close. In addition, the vast majority of Americans with limited savings lost their accounts as local banks closed, and likewise lost their jobs as investment in business and industry came to a screeching halt.

Finally, one of the most important factors in the crash was the contagion effect of panic. For much of the 1920s, the public felt confident that prosperity would continue forever, and therefore, in a self-fulfilling cycle, the market continued to grow. But once the panic began, it spread quickly and with the same cyclical results; people were worried that the market was going down, they sold their stock, and the market continued to drop. This was partly due to Americans’ inability to weather market volatility, given the limited cash surpluses they had on hand, as well as their psychological concern that economic recovery might never happen.

IN THE AFTERMATH OF THE CRASH

After the crash, Hoover announced that the economy was “fundamentally sound.” On the last day of trading in 1929, the New York Stock Exchange held its annual wild and lavish party, complete with confetti, musicians, and illegal alcohol. The U.S. Department of Labor predicted that 1930 would be “a splendid employment year.” These sentiments were not as baseless as it may seem in hindsight. Historically, markets cycled up and down, and periods of growth were often followed by downturns that corrected themselves. But this time, there was no market correction; rather, the abrupt shock of the crash was followed by an even more devastating depression. Investors, along with the general public, withdrew their money from banks by the thousands, fearing the banks would go under. The more people pulled out their money in bank runs , the closer the banks came to insolvency ( [link] ).

A photograph shows a large crowd of men and women waiting outside of a bank.

The contagion effect of the crash grew quickly. With investors losing billions of dollars, they invested very little in new or expanded businesses. At this time, two industries had the greatest impact on the country’s economic future in terms of investment, potential growth, and employment: automotive and construction. After the crash, both were hit hard. In November 1929, fewer cars were built than in any other month since November 1919. Even before the crash, widespread saturation of the market meant that few Americans bought them, leading to a slowdown. Afterward, very few could afford them. By 1933, Stutz, Locomobile, Durant, Franklin, Deusenberg, and Pierce-Arrow automobiles, all luxury models, were largely unavailable; production had ground to a halt. They would not be made again until 1949. In construction, the drop-off was even more dramatic. It would be another thirty years before a new hotel or theater was built in New York City. The Empire State Building itself stood half empty for years after being completed in 1931.

The damage to major industries led to, and reflected, limited purchasing by both consumers and businesses. Even those Americans who continued to make a modest income during the Great Depression lost the drive for conspicuous consumption that they exhibited in the 1920s. People with less money to buy goods could not help businesses grow; in turn, businesses with no market for their products could not hire workers or purchase raw materials. Employers began to lay off workers. The country’s gross national product declined by over 25 percent within a year, and wages and salaries declined by $4 billion. Unemployment tripled, from 1.5 million at the end of 1929 to 4.5 million by the end of 1930. By mid-1930, the slide into economic chaos had begun but was nowhere near complete.

THE NEW REALITY FOR AMERICANS

For most Americans, the crash affected daily life in myriad ways. In the immediate aftermath, there was a run on the banks, where citizens took their money out, if they could get it, and hid their savings under mattresses, in bookshelves, or anywhere else they felt was safe. Some went so far as to exchange their dollars for gold and ship it out of the country. A number of banks failed outright, and others, in their attempts to stay solvent, called in loans that people could not afford to repay. Working-class Americans saw their wages drop: Even Henry Ford, the champion of a high minimum wage, began lowering wages by as much as a dollar a day. Southern cotton planters paid workers only twenty cents for every one hundred pounds of cotton picked, meaning that the strongest picker might earn sixty cents for a fourteen-hour day of work. Cities struggled to collect property taxes and subsequently laid off teachers and police.

The new hardships that people faced were not always immediately apparent; many communities felt the changes but could not necessarily look out their windows and see anything different. Men who lost their jobs didn’t stand on street corners begging; they disappeared. They might be found keeping warm by a trashcan bonfire or picking through garbage at dawn, but mostly, they stayed out of public view. As the effects of the crash continued, however, the results became more evident. Those living in cities grew accustomed to seeing long breadlines of unemployed men waiting for a meal ( [link] ). Companies fired workers and tore down employee housing to avoid paying property taxes. The landscape of the country had changed.

A photograph shows a long line of men waiting on a New York City street for a hot meal. The man at the front of the line holds up a sign that reads, “Line for 1 cent restaurant. 20 meals for 1 cent. Donations invited. Help feed the hungry. 1 cent will feed 20. 1 cent restaurant. 103 W. 43rd St.”

The hardships of the Great Depression threw family life into disarray. Both marriage and birth rates declined in the decade after the crash. The most vulnerable members of society—children, women, minorities, and the working class—struggled the most. Parents often sent children out to beg for food at restaurants and stores to save themselves from the disgrace of begging. Many children dropped out of school, and even fewer went to college. Childhood, as it had existed in the prosperous twenties, was over. And yet, for many children living in rural areas where the affluence of the previous decade was not fully developed, the Depression was not viewed as a great challenge. School continued. Play was simple and enjoyed. Families adapted by growing more in gardens, canning, and preserving, wasting little food if any. Home-sewn clothing became the norm as the decade progressed, as did creative methods of shoe repair with cardboard soles. Yet, one always knew of stories of the “other” families who suffered more, including those living in cardboard boxes or caves. By one estimate, as many as 200,000 children moved about the country as vagrants due to familial disintegration.

Women’s lives, too, were profoundly affected. Some wives and mothers sought employment to make ends meet, an undertaking that was often met with strong resistance from husbands and potential employers. Many men derided and criticized women who worked, feeling that jobs should go to unemployed men. Some campaigned to keep companies from hiring married women, and an increasing number of school districts expanded the long-held practice of banning the hiring of married female teachers. Despite the pushback, women entered the workforce in increasing numbers, from ten million at the start of the Depression to nearly thirteen million by the end of the 1930s. This increase took place in spite of the twenty-six states that passed a variety of laws to prohibit the employment of married women. Several women found employment in the emerging pink collar occupations, viewed as traditional women’s work, including jobs as telephone operators, social workers, and secretaries. Others took jobs as maids and housecleaners, working for those fortunate few who had maintained their wealth.

White women’s forays into domestic service came at the expense of minority women, who had even fewer employment options. Unsurprisingly, African American men and women experienced unemployment, and the grinding poverty that followed, at double and triple the rates of their white counterparts. By 1932, unemployment among African Americans reached near 50 percent. In rural areas, where large numbers of African Americans continued to live despite the Great Migration of 1910–1930, depression-era life represented an intensified version of the poverty that they traditionally experienced. Subsistence farming allowed many African Americans who lost either their land or jobs working for white landholders to survive, but their hardships increased. Life for African Americans in urban settings was equally trying, with blacks and working-class whites living in close proximity and competing for scarce jobs and resources.

Life for all rural Americans was difficult. Farmers largely did not experience the widespread prosperity of the 1920s. Although continued advancements in farming techniques and agricultural machinery led to increased agricultural production, decreasing demand (particularly in the previous markets created by World War I) steadily drove down commodity prices. As a result, farmers could barely pay the debt they owed on machinery and land mortgages, and even then could do so only as a result of generous lines of credit from banks. While factory workers may have lost their jobs and savings in the crash, many farmers also lost their homes, due to the thousands of farm foreclosures sought by desperate bankers. Between 1930 and 1935, nearly 750,000 family farms disappeared through foreclosure or bankruptcy. Even for those who managed to keep their farms, there was little market for their crops. Unemployed workers had less money to spend on food, and when they did purchase goods, the market excess had driven prices so low that farmers could barely piece together a living. A now-famous example of the farmer’s plight is that, when the price of coal began to exceed that of corn, farmers would simply burn corn to stay warm in the winter.

As the effects of the Great Depression worsened, wealthier Americans had particular concern for “the deserving poor”—those who had lost all of their money due to no fault of their own. This concept gained greater attention beginning in the Progressive Era of the late nineteenth and early twentieth centuries, when early social reformers sought to improve the quality of life for all Americans by addressing the poverty that was becoming more prevalent, particularly in emerging urban areas. By the time of the Great Depression, social reformers and humanitarian agencies had determined that the “deserving poor” belonged to a different category from those who had speculated and lost. However, the sheer volume of Americans who fell into this group meant that charitable assistance could not begin to reach them all. Some fifteen million “deserving poor,” or a full one-third of the labor force, were struggling by 1932. The country had no mechanism or system in place to help so many; however, Hoover remained adamant that such relief should rest in the hands of private agencies, not with the federal government ( [link] ).

A photograph shows a line of men being served soup in front of St. Peter’s Mission in New York City.

Unable to receive aid from the government, Americans thus turned to private charities; churches, synagogues, and other religious organizations; and state aid. But these organizations were not prepared to deal with the scope of the problem. Private aid organizations showed declining assets as well during the Depression, with fewer Americans possessing the ability to donate to such charities. Likewise, state governments were particularly ill-equipped. Governor Franklin D. Roosevelt was the first to institute a Department of Welfare in New York in 1929. City governments had equally little to offer. In New York City in 1932, family allowances were $2.39 per week, and only one-half of the families who qualified actually received them. In Detroit, allowances fell to fifteen cents a day per person, and eventually ran out completely. In most cases, relief was only in the form of food and fuel; organizations provided nothing in the way of rent, shelter, medical care, clothing, or other necessities. There was no infrastructure to support the elderly, who were the most vulnerable, and this population largely depended on their adult children to support them, adding to families’ burdens ( [link] ).

A photograph shows an elderly destitute man leaning against a vacant storefront in San Francisco, California. The window is covered with signs indicating various properties that are “to lease.”

During this time, local community groups, such as police and teachers, worked to help the neediest. New York City police, for example, began contributing 1 percent of their salaries to start a food fund that was geared to help those found starving on the streets. In 1932, New York City schoolteachers also joined forces to try to help; they contributed as much as $250,000 per month from their own salaries to help needy children. Chicago teachers did the same, feeding some eleven thousand students out of their own pockets in 1931, despite the fact that many of them had not been paid a salary in months. These noble efforts, however, failed to fully address the level of desperation that the American public was facing.

Section Summary

The prosperous decade leading up to the stock market crash of 1929, with easy access to credit and a culture that encouraged speculation and risk-taking, put into place the conditions for the country’s fall. The stock market, which had been growing for years, began to decline in the summer and early fall of 1929, precipitating a panic that led to a massive stock sell-off in late October. In one month, the market lost close to 40 percent of its value. Although only a small percentage of Americans had invested in the stock market, the crash affected everyone. Banks lost millions and, in response, foreclosed on business and personal loans, which in turn pressured customers to pay back their loans, whether or not they had the cash. As the pressure mounted on individuals, the effects of the crash continued to spread. The state of the international economy, the inequitable income distribution in the United States, and, perhaps most importantly, the contagion effect of panic all played roles in the continued downward spiral of the economy.

In the immediate aftermath of the crash, the government was confident that the economy would rebound. But several factors led it to worsen instead. One significant issue was the integral role of automobiles and construction in American industry. With the crash, there was no money for either auto purchases or major construction projects; these industries therefore suffered, laying off workers, cutting wages, and reducing benefits. Affluent Americans considered the deserving poor—those who lost their money due to no fault of their own—to be especially in need of help. But at the outset of the Great Depression, there were few social safety nets in place to provide them with the necessary relief. While some families retained their wealth and middle-class lifestyle, many more were plunged quite suddenly into poverty and often homelessness. Children dropped out of school, mothers and wives went into domestic service, and the fabric of American society changed inexorably.

Review Questions

Which of the following is a cause of the stock market crash of 1929?

Which of the following groups would not be considered “the deserving poor” by social welfare groups and humanitarians in the 1930s?

What were Hoover’s plans when he first entered office, and how were these reflective of the years that preceded the Great Depression?

At the outset of his presidency, Hoover planned to establish an agenda that would promote continued economic prosperity and eradicate poverty. He planned to eliminate federal regulations of the economy, which he believed would allow for maximum growth. For Americans themselves, he advocated a spirit of rugged individualism: Americans could bring about their own success or failure in partnership with the government, but remain unhindered by unnecessary government intervention in their everyday lives. These philosophies and policies reflected both the prosperity and optimism of the previous decade and a continuation of the postwar “return to normalcy” championed by Hoover’s Republican predecessors.

1 Herbert Hoover, address delivered in Denver, Colorado, 30 October 1936, compiled in Hoover, Addresses Upon the American Road, 1933-1938 (New York, 1938), p. 216. This particular quotation is frequently misidentified as part of Hoover’s inaugural address in 1932.

25.1 The Stock Market Crash of 1929

Learning objectives.

By the end of this section, you will be able to:

Identify the causes of the stock market crash of 1929
Assess the underlying weaknesses in the economy that resulted in America’s spiraling from prosperity to depression so quickly
Compare how the stock market crash impacted different groups in America

THE EARLY DAYS OF HOOVER’S PRESIDENCY

THE GREAT CRASH

What Was the Crash?

Selling Optimism and Risk

In the decade before the Great Depression, the optimism of the American public was seemingly boundless. Advertisements from that era show large new cars, timesaving labor devices, and, of course, land. This advertisement for California real estate illustrates how realtors in the West, much like the ongoing Florida land boom, used a combination of the hard sell and easy credit ( Figure 25.3 ). “Buy now!!” the ad shouts. “You are sure to make money on these.” In great numbers, people did. With easy access to credit and hard-pushing advertisements like this one, many felt that they could not afford to miss out on such an opportunity. Unfortunately, overspeculation in California and hurricanes along the Gulf Coast and in Florida conspired to burst this land bubble, and would-be millionaires were left with nothing but the ads that once pulled them in.

Click and Explore

Causes of the Crash

IN THE AFTERMATH OF THE CRASH

The contagion effect of the crash grew quickly. With investors losing billions of dollars, they invested very little in new or expanded businesses. At this time, two industries had the greatest impact on the country’s economic future in terms of investment, potential growth, and employment: automotive and construction. After the crash, both were hit hard. In November 1929, fewer cars were built than in any other month since November 1919. Even before the crash, widespread saturation of the market meant that few Americans bought them, leading to a slowdown. Afterward, very few could afford luxury cars, like Stutz, Deusenberg, and Pierce-Arrow, so these car companies gradually went out of business in the 1930s. In construction, the drop-off was even more dramatic. It would be another thirty years before a new hotel or theater was built in New York City. The Empire State Building itself stood half empty for years after being completed in 1931.

THE NEW REALITY FOR AMERICANS

The new hardships that people faced were not always immediately apparent; many communities felt the changes but could not necessarily look out their windows and see anything different. Men who lost their jobs didn’t stand on street corners begging; they disappeared. They might be found keeping warm by a trashcan bonfire or picking through garbage at dawn, but mostly, they stayed out of public view. As the effects of the crash continued, however, the results became more evident. Those living in cities grew accustomed to seeing long breadlines of unemployed men waiting for a meal ( Figure 25.6 ). Companies fired workers and tore down employee housing to avoid paying property taxes. The landscape of the country had changed.

White women’s forays into domestic service came at the expense of minority women, who had even fewer employment options. Unsurprisingly, African American men and women experienced unemployment, and the grinding poverty that followed, at double and triple the rates of their White counterparts. By 1932, unemployment among African Americans reached near 50 percent. In rural areas, where large numbers of African Americans continued to live despite the Great Migration of 1910–1930, depression-era life represented an intensified version of the poverty that they traditionally experienced. Subsistence farming allowed many African Americans who lost either their land or jobs working for White landholders to survive, but their hardships increased. Life for African Americans in urban settings was equally trying, with Black people and working-class White people living in close proximity and competing for scarce jobs and resources.

1 Herbert Hoover, address delivered in Denver, Colorado, 30 October 1936, compiled in Hoover, Addresses Upon the American Road, 1933-1938 (New York, 1938), p. 216. This particular quotation is frequently misidentified as part of Hoover’s inaugural address in 1932.

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Stock Market Crash of 1929 Facts, Causes, and Impact

The Crash That Launched the Great Depression

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

A Timeline of What Happened

Financial climate leading up to the crash, effects of the crash, frequently asked questions (faqs).

The stock market crash of 1929 was a collapse of stock prices that began on October 24, 1929. By October 29, 1929, the Dow Jones Industrial Average had dropped by 30.57%, marking one of the worst declines in U.S. history. It destroyed confidence in Wall Street markets and led to the Great Depression .

Key Takeaways

The stock market crash of 1929 was one of the worst in U.S. history.
The three key trading dates of the crash were Black Thursday, Black Monday, and Black Tuesday. The latter two days were among the four worst days the Dow has ever seen, by percentage decline.
Overconfidence during the Roaring Twenties created an unsustainable stock Ybubble.
Overnight, many people lost their businesses and life savings, setting the stage for the Great Depression.

The first day of the crash was Black Thursday . The Dow opened at 305.85. It immediately fell by 11%, signaling a stock market correction. Trading was triple the normal volume. Wall Street bankers feverishly bought shares to prop it up. The strategy worked.

On Friday, October 25, the positive momentum continued. The Dow rose by 0.6% to 301.22.

On Black Monday, October 28, the Dow fell by 13.47% to 260.64.

On Black Tuesday, October 29, the Dow fell by 11.7% to 230.07. According to a New York Times article published a day later on October 30, 1929, panicked investors sold an unprecedented number of shares, 16,410,030 to be exact.

Black Monday and Tuesday were among the four worst days in Dow history. They were followed by two subsequent crashes:

During the 2020 stock market crash, with a nearly 10% drop on March 12 and a 12.93% drop on March 16.
A 22.6% decline on Black Monday 1987.

Earlier in the week of the stock market crash, the New York Times and other media outlets may have fanned the panic with articles about violent trading periods, short-selling, and the exit of foreign investors; however many reports downplayed the severity of these changes, comparing the market instead to a similar "spring crash" earlier that year, after which the market bounced back again.

The Dow was already down by 28% from its September 3 high, according to S&P Dow Jones Indices. That signaled a bear market. In late September, investors had been worried about massive declines in the British stock market. Investors in Clarence Hatry's company lost billions when they discovered that he had used fraudulent collateral to buy United Steel. A few days later, Great Britain's Chancellor of the Exchequer, Philip Snowden, described America's stock market as "a perfect orgy of speculation."

The next day, U.S. newspapers agreed. They quoted U.S. Treasury Secretary Andrew Mellon, who said investors "acted as if the price of securities would infinitely advance."

In response, the Dow dropped significantly on both of those days and again on October 16. By the 19th and 20th, The Washington Post reported a drop in ultra-safe utility stocks.

The day before Black Thursday, Washington Post headlines blared, "Huge Selling Wave Creates Near-Panic as Stocks Collapse," while the Times screamed, "Prices of Stocks Crash in Heavy Liquidation." By Black Thursday, panic had set in for the worst stock market crash in history.

The crash followed an asset bubble . Since 1922, the stock market had gone up by more than 20% per year.

In the 1920s, prior to the crash, a financial practice called buying "on margin" was invented. It allowed people to borrow money from their broker to buy stocks. In many cases, people could leverage a large amount of borrowed money from a small initial investment. Investing this way may have contributed to the irrational exuberance of the Roaring Twenties.

The crash wiped many people out. They were forced to sell businesses and cash in their life savings. Brokers called in their loans when the stock market started falling. People scrambled to find enough money to pay for their margins. They lost faith in Wall Street.

You can’t have a healthy economy without confidence in the market.

By July 8, 1932, the Dow was down to 41.22. That was an 89.2% loss from its record-high close of 381.17 on September 3, 1929. It was the worst bear market in terms of percentage loss in modern U.S. history. The largest one-day percentage gain also occurred during that time. On March 15, 1933, the Dow rose by 15.34%, a gain of 8.26 points, to close at 62.1.

The timeline of the Great Depression tracks critical events leading up to the greatest economic crisis the United States ever had.

The Depression devastated the U.S. economy . Wages fell by 42% as unemployment rose to 25%. U.S. economic growth decreased by 54.7%, and world trade plummeted 65%. As a result of deflation, prices fell by more than 10% per year between 1929 and 1933.

Below you can see a chart tracking key events leading up to the 1929 stock market crash.

March 1929: The Dow dropped, but bankers reassured investors.
August 8: The Federal Reserve Bank of New York raised the discount rate to 6%.
September 3: The Dow peaked at 381.17. That was a 27% increase over the prior year's peak.
September 26: The Bank of England also raised its rate to protect the gold standard.
September 29, 1929: The Hatry Case threw British markets into panic.
October 3: Great Britain's Chancellor of the Exchequer Phillip Snowden called the U.S. stock market a "speculative orgy."
October 4: The Wall Street Journal and The New York Times agreed with Snowden.
October 24: Black Thursday.
October 28: Black Monday.
October 29: Black Tuesday.
1933: President Roosevelt launched the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits. After the crash, banks only had enough to honor 10 cents for every dollar. That's because they had used their depositors' savings, without their knowledge, to buy stocks.
November 23, 1954: The Dow finally regained its September 3, 1929, high and closed at 382.74.

Other past stock market crashes led to the 2001 recession and the Great Recession of 2008. The March 2020 crash occurred during the 2020 recession, which began in the first quarter.

When did the stock market crash?

The 1929 stock market crash was the first in modern history, but it wasn't the last. The U.S. stock market also crashed in 1987, 2000 , 2008, and 2020 . There have also been several flash crashes since the 2008 crash.

How do I protect my 401(k) from a stock market crash?

If you're young and don't plan on retiring for decades, you don't necessarily need to worry about stock market crashes. Historically, stocks have eventually recovered from crashes, so long-term investors may lose by trying to time the market . If you're closer to retirement, then you can help protect your 401(k) from crashes by reducing equity exposure (especially growth stocks ) and increasing income investments .

S&P Dow Jones Indices. “ DJIA Daily Performance History , “ Download DJIA Daily Performance History.

FDIC. " Historical Timeline ."

The New York Times Archive. " Stocks Collapse in 16,410,030-Share Day, but Rally at Close Cheers Brokers; Bankers Optimistic, to Continue Aid ."

Mieszko Mazur, Man Dang, and Miguel Vega. " COVID-19 and the March 2020 Stock Market Crash. Evidence From S&P1500 ." Finance Research Letters.

Yahoo! Finance. " Dow Jones Industrial Average (^DJI) ."

Library of Congress. " The Black Monday Stock Market Crash ."

Jari Ojala and Turo Uskali. " Any Weak Signals?: The New York Times and the Stock Market Crashes of 1929, 1987 and 2000 ," Pages 10-14. Information Flows: New Approaches in the Historical Study of Business Information.

Christopher Swinson. " Share Trading and the London Stock Exchange 1914-1945: The Dawn of Regulation ," Pages 171-176. Diss. Durham University .

Dimitri Papadimitriou. " Stability in the Financial System ," Page 66. Springer, 1996.

Economic History Association. “ The 1929 Stock Market Crash .”

University of Southern Denmark Department of Economics. " The Great Margin Call: The Role of Leverage in the 1929 Stock Market Crash ," Download external link. Page 17.

Bureau of Labor Statistics. " Labor Force, Employment, and Unemployment, 1929-39: Estimating Methods ,” Page 51.

Stanford University. " The Great Depression and the New Deal ."

World Trade Organization. “ World Trade Report 2013 ,” Page 52.

The Federal Reserve Bank of San Francisco. " The Risk of Deflation ."

Federal Reserve of St. Louis. " The Discount Rate Controversy Between the Federal Reserve Board and the Federal Bank of New York ," Page 1.

Jean-Laurent Cadorel. " An International Monetary Explanation of the 1929 Crash of the New York Stock Exchange ," Page 15. Economic History Society .

John Rogers. " Voting in Context: A Brief Economic History of American Politics, " Page 60. C ambridge Scholars Publishing , 2019.

Stock Market Crash of 1929

October 1929.

The Roaring Twenties roared loudest and longest on the New York Stock Exchange. Share prices rose to unprecedented heights. The Dow Jones Industrial Average increased six-fold from sixty-three in August 1921 to 381 in September 1929. After prices peaked, economist Irving Fisher proclaimed, “stock prices have reached ‘what looks like a permanently high plateau.’” 1

The epic boom ended in a cataclysmic bust. On Black Monday, October 28, 1929, the Dow declined nearly 13 percent. On the following day, Black Tuesday, the market dropped nearly 12 percent. By mid-November, the Dow had lost almost half of its value. The slide continued through the summer of 1932, when the Dow closed at 41.22, its lowest value of the twentieth century, 89 percent below its peak. The Dow did not return to its pre-crash heights until November 1954.

Chart 1: Dow Jones Industrial Average Index daily closing price, January 2, 1920, to December 31, 1954. Data plotted as a curve. Units are index value. Minor tick marks indicate the first trading day of the year. As shown in the figure, the index peaked on September 3, 1929, closing at 381.17. The index declined until July 8, 1932, when it closed at $41.22. The index did not reach the 1929 high again until November 23, 1954.

The financial boom occurred during an era of optimism. Families prospered. Automobiles, telephones, and other new technologies proliferated. Ordinary men and women invested growing sums in stocks and bonds. A new industry of brokerage houses, investment trusts, and margin accounts enabled ordinary people to purchase corporate equities with borrowed funds. Purchasers put down a fraction of the price, typically 10 percent, and borrowed the rest. The stocks that they bought served as collateral for the loan. Borrowed money poured into equity markets, and stock prices soared.

Skeptics existed, however. Among them was the Federal Reserve. The governors of many Federal Reserve Banks and a majority of the Federal Reserve Board believed stock-market speculation diverted resources from productive uses, like commerce and industry. The Board asserted that the “Federal Reserve Act does not … contemplate the use of the resources of the Federal Reserve Banks for the creation or extension of speculative credit” (Chandler 1971, 56). 2

The Board’s opinion stemmed from the text of the act. Section 13 authorized reserve banks to accept as collateral for discount loans assets that financed agricultural, commercial, and industrial activity but prohibited them from accepting as collateral “notes, drafts, or bills covering merely investments or issued or drawn for the purpose of carrying or trading in stocks, bonds or other investment securities, except bonds and notes of the Government of the United States” (Federal Reserve Act 1913).

Section 14 of the act extended those powers and prohibitions to purchases in the open market. 3

These provisions reflected the theory of real bills, which had many adherents among the authors of the Federal Reserve Act in 1913 and leaders of the Federal Reserve System in 1929. This theory indicated that the central bank should issue money when production and commerce expanded, and contract the supply of currency and credit when economic activity contracted.

The Federal Reserve decided to act. The question was how. The Federal Reserve Board and the leaders of the reserve banks debated this question. To rein in the tide of call loans, which fueled the financial euphoria, the Board favored a policy of direct action. The Board asked reserve banks to deny requests for credit from member banks that loaned funds to stock speculators. 4 The Board also warned the public of the dangers of speculation.

The governor of the Federal Reserve Bank of New York, George Harrison, favored a different approach. He wanted to raise the discount lending rate. This action would directly increase the rate that banks paid to borrow funds from the Federal Reserve and indirectly raise rates paid by all borrowers, including firms and consumers. In 1929, New York repeatedly requested to raise its discount rate; the Board denied several of the requests. In August the Board finally acquiesced to New York’s plan of action, and New York’s discount rate reached 6 percent. 5

The Federal Reserve’s rate increase had unintended consequences. Because of the international gold standard, the Fed’s actions forced foreign central banks to raise their own interest rates. Tight-money policies tipped economies around the world into recession. International commerce contracted, and the international economy slowed (Eichengreen 1992; Friedman and Schwartz 1963; Temin 1993).

The financial boom, however, continued. The Federal Reserve watched anxiously. Commercial banks continued to loan money to speculators, and other lenders invested increasing sums in loans to brokers. In September 1929, stock prices gyrated, with sudden declines and rapid recoveries. Some financial leaders continued to encourage investors to purchase equities, including Charles E. Mitchell, the president of the National City Bank (now Citibank) and a director of the Federal Reserve Bank of New York. 6 In October, Mitchell and a coalition of bankers attempted to restore confidence by publicly purchasing blocks of shares at high prices. The effort failed. Investors began selling madly. Share prices plummeted.

A crowd gathers outside the New York Stock Exchange following the 1929 crash.

Funds that fled the stock market flowed into New York City’s commercial banks. These banks also assumed millions of dollars in stock-market loans. The sudden surges strained banks. As deposits increased, banks’ reserve requirements rose; but banks’ reserves fell as depositors withdrew cash, banks purchased loans, and checks (the principal method of depositing funds) cleared slowly. The counterpoised flows left many banks temporarily short of reserves.

To relieve the strain, the New York Fed sprang into action. It purchased government securities on the open market, expedited lending through its discount window, and lowered the discount rate. It assured commercial banks that it would supply the reserves they needed. These actions increased total reserves in the banking system, relaxed the reserve constraint faced by banks in New York City, and enabled financial institutions to remain open for business and satisfy their customers’ demands during the crisis. The actions also kept short term interest rates from rising to disruptive levels, which frequently occurred during financial crises.

At the time, the New York Fed’s actions were controversial. The Board and several reserve banks complained that New York exceeded its authority. In hindsight, however, these actions helped to contain the crisis in the short run. The stock market collapsed, but commercial banks near the center of the storm remained in operation (Friedman and Schwartz 1963).

While New York’s actions protected commercial banks, the stock-market crash still harmed commerce and manufacturing. The crash frightened investors and consumers. Men and women lost their life savings, feared for their jobs, and worried whether they could pay their bills. Fear and uncertainty reduced purchases of big ticket items, like automobiles, that people bought with credit. Firms – like Ford Motors – saw demand decline, so they slowed production and furloughed workers. Unemployment rose, and the contraction that had begun in the summer of 1929 deepened (Romer 1990; Calomiris 1993). 7

While the crash of 1929 curtailed economic activity, its impact faded within a few months, and by the fall of 1930 economic recovery appeared imminent. Then, problems in another portion of the financial system turned what may have been a short, sharp recession into our nation’s longest, deepest depression.

From the stock market crash of 1929, economists – including the leaders of the Federal Reserve – learned at least two lessons. 8

First, central banks – like the Federal Reserve – should be careful when acting in response to equity markets. Detecting and deflating financial bubbles is difficult. Using monetary policy to restrain investors’ exuberance may have broad, unintended, and undesirable consequences. 9

Second, when stock market crashes occur, their damage can be contained by following the playbook developed by the Federal Reserve Bank of New York in the fall of 1929.

Economists and historians debated these issues during the decades following the Great Depression. Consensus coalesced around the time of the publication of Milton Friedman and Anna Schwartz’s A Monetary History of the United States in 1963. Their conclusions concerning these events are cited by many economists, including members of the Federal Reserve Board of Governors such as Ben Bernanke, Donald Kohn and Frederic Mishkin.

In reaction to the financial crisis of 2008 scholars may be rethinking these conclusions. Economists have been questioning whether central banks can and should prevent asset market bubbles and how concerns about financial stability should influence monetary policy. These widespread discussions hearken back to the debates on this issue among the leaders of the Federal Reserve during the 1920s.

1 Irving Fisher’s quote appeared in the New York Times on October 16, 1929, p. 8. Fisher made the comment in a speech at the monthly dinner of the Purchasing Agents Association at the Builders Exchange Club, 2 Park Avenue. At the time, Fisher was one of the nation’s most well-known and widely quoted economists. His comments came in response to a prediction on September 5 at the Annual National Business Conference by rival financial prognosticator, Roger Babson, that “sooner or later a crash is coming, and it may be terrific.” Babson’s comment was followed by a sharp decline in stock-market prices known as the Babson break. Fisher reiterated his faith in the stock market in a speech before the District of Columbia Bankers Association on October 23.
2 The Board made these statements in its famous letter from February 2, 1929. For the text of the letter and discussion of its implications see Chandler 1971, pp. 56-58.
3 In addition to assets that could serve as collateral for discount loans, Section 14 authorized open market purchases of (a) gold coins, bullion, and certificates, and (b) securities issued and guaranteed by “any State, county, district, political subdivision, or municipality in the continental United States” (Federal Reserve Act 1913).
4 These requests appear in the Board’s letter of February 2, 1929. See Chandler 1971, pp. 56-58.
5 In this brief essay, we focus on the clash of opinions between the leaders of the Federal Reserve Board in Washington, DC, and leaders of the Federal Reserve Bank of New York. Several of the authors that we cite also highlight this line of debate. We should note that leaders throughout the Federal Reserve System vigorously debated this issue, and differences of opinion existed between the Board and leaders of many banks and also within those leadership groups. At times, for example, members of the Federal Reserve Board disagreed with each other about the appropriate course of action; policy proposals frequently passed only with split votes and after vigorous discussion and dissent. Differences of opinion also existed among the board of directors of the Federal Reserve Bank of New York and between leaders in New York, Washington, and other cities. An overview of the system-wide debate appears in Chandler 1971, pp. 54-70.
6 Galbraith characterizes Mitchell as one of the two prominent “prophets” of the stock market boom, the other being Irving Fisher.
7 The account that we present is, in our opinion, the academic consensus, although on this issue we note that Meltzer (2003, 252-257) and other scholars suggest that the crash was a symptom, not a contributing force, to the contraction in 1929.
8 Friedman and Schwartz (1963) outline these lessons in their coverage of the stock market crash. Meltzer (2003) reaches similar conclusions in his history of the Federal Reserve. Chairmen of the Federal Reserve, including Bernanke and Greenspan, echoed these sentiments in their writings and speeches in recent decades.
9 Irrational exuberance is, of course, a phrase popularized by Alan Greenspan and typically cited to this speech.

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Romer, Christina. “The Great Crash and the Onset of the Great Depression.” Quarterly Journal of Economics 105, no. 3 (August 1990): 597-624.

Temin, Peter. “Transmission of the Great Depression.” Journal of Economic Perspectives 7, no. 2 (Spring 1993): 87-102.

Written as of November 22, 2013. See disclaimer .

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What caused the Wall Street Crash of 1929?

The 1929 stock market crash was a result of an unsustainable boom in share prices in the preceding years. The boom in share prices was caused by the irrational exuberance of investors, buying shares on the margin, and over-confidence in the sustainability of economic growth. Some economists argue the boom was also facilitated by ‘loose money’ with US interest rates kept low in the mid-1920s.

These are some of the most significant economic factors behind the stock market crash of 1929.

1. Credit boom

In the 1920s, there was a rapid growth in bank credit and loans in the US. Encouraged by the strength of the economy, people felt the stock market was a one-way bet. Some consumers borrowed to buy shares. Firms took out more loans for expansion. Because people became highly indebted, it meant they became more susceptible to a change in confidence. When that change of confidence came in 1929, those who had borrowed were particularly exposed and joined the rush to sell shares and try and redeem their debts.

2. Buying on the margin

Related to buying on credit was the practice of buying shares on the margin. This meant you only had to pay 10 or 20% of the value of the shares; it meant you were borrowing 80-90% of the value of the shares. This enabled more money to be put into shares, increasing their value. It is said there were many ‘margin millionaire’ investors. They had made huge profits by buying on the margin and watching share prices rise. But, it left investors very exposed when prices fell. These margin millionaires got wiped out when the stock market fall came. It also affected those banks and investors who had lent money to those buying on the margin.

3. Irrational exuberance

A lot of the stock market crash can be blamed on over-exuberance and false expectations. In the years leading up to 1929, the stock market offered the potential for making huge gains in wealth. It was the new gold rush. People bought shares with the expectations of making more money. As share prices rose, people started to borrow money to invest in the stock market. The market got caught up in a speculative bubble. – Shares kept rising, and people felt they would continue to do so. The problem was that stock prices became divorced from the real potential earnings of the share prices. Prices were not being driven by economic fundamentals but the optimism/exuberance of investors. The average earning per share rose by 400% between 1923 and 1929. Those who questioned the value of shares were often labelled doom-mongers. This was not the first investment bubble, nor was it the last. Most recently we saw a similar phenomenon in the dot com bubble.

In March 1929, the stock market saw its first major reverse, but this mini-panic was overcome leading to a strong rebound in the summer of 1929. By October 1929, shares were grossly overvalued. When some companies posted disappointing results on October 24 (Black Thursday), some investors started to feel this would be a good time to cash in on their profits; share prices began to fall and panic selling caused prices to fall sharply. Financiers, such as JP Morgan tried to restore confidence by buying shares to prop up prices. But, this failed to alter the rapid change in market sentiment. On October 29 (Black Tuesday) share prices fell by $40 billion in a single day. By 1930 the value of shares had fallen by 90%. The bull market had been replaced by a bear market.

4. A mismatch between production and consumption

The 1920s saw great strides in production techniques, especially in industries like automobiles. The production line enabled economies of scale and great increases in production. However, the demand for buying expensive cars and consumer goods were struggling to keep up. Therefore, towards the end of the 1920s, many firms were struggling to sell all their production. This caused some of the disappointing profit results which precipitated falls in share prices.

Rapid growth in Real GDP during the 1920s, couldn’t be maintained

In 1929, there were already warning signs from the economy with falling car sales, lower steel production and a slowdown in housing construction. However, despite these warning signs, people still kept buying shares.

5. Agricultural recession

Even before 1929, the American agricultural sector was struggling to maintain profitability. Many small farmers were driven out of business because they could not compete in the new economic climate. Better technology was increasing supply, but demand for food was not increasing at the same rate. Therefore, prices fell, and farmers incomes dropped. There was occupational and geographical immobilities in this sector, and it was difficult for unemployed farmers to get jobs elsewhere in the economy.

6. Weaknesses in the banking system

Before the Great Depression, the American banking system was characterised by having many small to medium sized firms. America had over 30,000 banks. The effect of this was that they were prone to going bankrupt if there was a run on deposits. In particular, many banks in rural areas went bankrupt due to the agricultural recession. This had a negative impact on the rest of the financial industry. Between 1923 and 1930, 5,000 banks collapsed.

Note: If the question was – What caused the Great Depression? The answer would be slightly different. This is because some believe the Stock market crash was only partly to blame for the Great Depression (although it was a significant factor in precipitating it.)

7. Role of monetary policy

Discount Rate – Federal Reserve Bank of NY for US | St Louis

In the mid-1920s, US interest rates were kept low. However, if we look at the very low inflation rate, real interest rates were substantially positive.

US inflation in the 1920s

From 1928, the Federal Reserve began raising interest rates – partly concerned about booming share prices. Increasing interest rates to 6% played a factor in reducing economic growth and reducing demand for shares.

Economics of the 1920s at Economics Help
Causes of Great Depression
How does the stock market affect the economy?
Wall Street Crash – wikipedia

30 thoughts on “What caused the Wall Street Crash of 1929?”

Hey I need help, so I made up a thesis statement saying “Investment in technology based companies (labor-saving devices such as household appliances and machinery) in the 1920’s caused the Stock Market Crash of 1929.” Is that really true though? The evidence I tried to collect was indirectly saying its true, but I really didn’t find any good sources to support my thesis statement…

I have a similar thesis, but what I said was that the effects of The American Dream were the cause of the market crash and that’s why it’s unobtainable. I’d like to know if that’s true as well.

A thesis is an argument, if you haven’t figured that out yet. The “truth” is irrelevant. You’re making a claim – now argue it and support it with evidence.

Thank you , it is exceedingly helpful.

My comment is for Jmoney. Ahem… “ The idea that “truth” is irrelevant (even in a thesis) is WHY the stock market crashed in 1929 AND why all the bets were shaken out of it (about 1/3rd) during 2020

This is very important in American History.

The motor of capitalism is profit – it guides the actions of consumers, workers, governments and capitalists alike. The problem was hinted at, but not fully explored. When there is a technological breakthrough this is often followed by a period of intense capital application, with wages also rising. Production gathers speed but this leads to a crisis of overproduction where there are too many goods and not enough additional wages and profits to mop up the surplus output. With unsold inventory, production is slashed and wages fall provoking a recession with rising unemployment. This leads to falling wages and falling demand in the economy. Prices fall until they are low enough to tempt money on the sidelines back into the market and off it goes again!

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Course: US history > Unit 7

The presidency of Herbert Hoover

The Great Depression

FDR and the Great Depression
The New Deal
The Great Depression was the worst economic downturn in US history. It began in 1929 and did not abate until the end of the 1930s.
The stock market crash of October 1929 signaled the beginning of the Great Depression. By 1933, unemployment was at 25 percent and more than 5,000 banks had gone out of business.
Although President Herbert Hoover attempted to spark growth in the economy through measures like the Reconstruction Finance Corporation, these measures did little to solve the crisis.
Franklin Roosevelt was elected president in November 1932. Inaugurated as president in March 1933, Roosevelt’s New Deal offered a new approach to the Great Depression.

The stock market crash of 1929

Hoover's response to the crisis, what do you think.

David M. Kennedy, Freedom from Fear: The American People in Depression and War, 1929-1945 (New York: Oxford University Press, 1999), 37-41, 49-50.
T.H. Watkins, The Hungry Years: A Narrative History of the Great Depression in America (New York: Henry Holt, 1999), 44-45; Kennedy, Freedom from Fear , 87.
Louise Armstrong, We Too Are the People (Boston: Little, Brown & Co., 1938), 10.
On bank failures, see Kennedy, Freedom from Fear , 65.
See Kennedy, Freedom from Fear , 87, 208; Robert S. McElvaine, ed., Down and Out in the Great Depression: Letters from the “Forgotten Man” (Chapel Hill: University of North Carolina Press, 1983), 81-94.
John A. Garraty, The Great Depression: An Inquiry into the Causes, Course, and Consequences of the Worldwide Depression of the Nineteen-Thirties, as Seen by Contemporaries and in the Light of History (New York: Doubleday, 1987).
Kennedy, Freedom from Fear , 83-85.
On Hoovervilles and Hoover flags, Kennedy, Freedom from Fear , 91.

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Lesson Plan: The Great Depression

President Herbert Hoover and the "Black Tuesday" 1929 Stock Market Crash

Emily Charnock on President Hoover and the backdrop preceding "Black Tuesday " and the stock market crash of October 1929.

Description

The Great Depression was a severe economic depression that began in the United States following the stock market crash in October of 1929 and lasted into the late 1930s. The depression had widespread effects across the entire country with many bank failures and record high unemployment as the government struggled on the proper methods to intervene. In this lesson, students will learn about the causes and impact of the Great Depression as well as the significance of governmental policies on the crisis.

INTRODUCTION

The stock market crash of 1929 triggered the beginning of the Great Depression but additional underlying economic conditions further exacerbated the situation.

Have students watch the following introductory video clips and answer the questions below:

VIDEO CLIP: President Hoover and the 1929 Stock Market Crash (1:11)

VIDEO CLIP: "Black Tuesday" Stock Market Crash of 1929 (2:11)

Describe the warning signs that were evident prior to the stock market crash

According to Professor McCatin, which factors fueled the stock market crash?

Why did the effects of the crash linger for so long and trigger the beginning of the Great Depression?

Break students into groups and have each group view the following video clips. Students should take notes using the handout provided or answer the individual Bell Ringer questions, and then share their findings with the rest of the class.

HANDOUT: Great Depression Handout (Google Doc)

Video Clip: The Bonus Army, Hoovervilles, and the Great Depression (2:40)

Historian Richard Norton Smith discussed the Bonus Army and Hoovervilles during the Great Depression.

Video Clip: Life as an Unemployed Person during the Great Depression (3:35)

Michael Golay talked about the effects of the Great Depression in New York city during the periods of 1931-1933, including a first person account of life as an unemployed person during that time.

Video Clip: The Great Depression Documented in Photographs (7:36)

Library of Congress curator Beverly Brannan talked about the images taken by photographers working for the U.S. Government’s Farm Security Administration during the Great Depression.

Video Clip: The Great Depression and Election of FDR (2:55)

Curator Herman Eberhardt gave a tour of the Franklin D. Roosevelt Presidential Library and Museum and discussed the Great Depression and its effect on the election of Franklin Roosevelt.

After watching the videos and reporting out to the class, have students participate in a "Take a Stand" activity with the following question.

"During an economic recession, the government should intervene in the economy to attempt to stablilize the country"

Have students line up on a continuum based on their opinion from “Strongly Agree” to “Strongly Disagree.” Ask several students from different points on the line to share their reasoning and defend their position.

After completing the "Take a Stand" activity, have students write an essay (or similar culminating activity) that includes the following information. Students should cite specific examples from the videos and class discussion.

The causes of the Great Depression
Its effects on everyday Americans
How the government initially responded to the Great Depression, and how it led to the election of FDR

Have students research the Great Recession of 2008. Then, have them compare and contrast the effects of each on the country, as well as the response of the government either in list or essay form. Then, as a class discuss what lessons the country and government did or did not learn from the Great Depression in regards to the Great Recession of 2008.

FOLLOW UP LESSON

After completing the lesson on the Great Depression, have students complete the New Deal Lesson in order to learn about the creation of the New Deal, its impact on the Great Depression and the economy, as well as its legacy on the role of the government in the lives of the American people.

Additional Resource

In this lesson, students will learn about the creation of the New Deal, its impact on the Great Depression and the economy, as well as its legacy on the role of the government in the lives of the American people.

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Great Depression History

By: History.com Editors

Updated: October 20, 2023 | Original: October 29, 2009

New York, USA 1931. New Yorkers celebrated Christmas in 1931, with a city-wide solicitude for those touched by misfortune during the year. The Municipal Lodging House fed 10,000 persons, including about 100 women and the Police Glee Club and the Police BNew York, USA, 1931, New Yorkers celebrated Christmas in 1931, with a city-wide solicitude for those touched by misfortune during the year, The Municipal Lodging House fed 10,000 persons, including about 100 women and the Police Glee Club and the Police Band entertained them, Here a line of hungrey men waiting to enter the Municipal Lodging House on East 25th street (Photo by Rolls Press/Popperfoto via Getty Images/Getty Images)

The Great Depression was the worst economic crisis in modern history, lasting from 1929 until the beginning of World War II in 1939. The causes of the Great Depression included slowing consumer demand, mounting consumer debt, decreased industrial production and the rapid and reckless expansion of the U.S. stock market. When the stock market crashed in October 1929, it triggered a crisis in the international economy, which was linked via the gold standard. A rash of bank failures followed in 1930, and as the Dust Bowl increased the number of farm foreclosures, unemployment topped 20 percent by 1933. Presidents Herbert Hoover and Franklin D. Roosevelt tried to stimulate the economy with a range of incentives including Roosevelt’s New Deal programs, but ultimately it took the manufacturing production increases of World War II to end the Great Depression.

What Caused the Great Depression?

Throughout the 1920s, the U.S. economy expanded rapidly, and the nation’s total wealth more than doubled between 1920 and 1929, a period dubbed “ the Roaring Twenties .”

The stock market, centered at the New York Stock Exchange on Wall Street in New York City , was the scene of reckless speculation, where everyone from millionaire tycoons to cooks and janitors poured their savings into stocks. As a result, the stock market underwent rapid expansion, reaching its peak in August 1929.

By then, production had already declined and unemployment had risen, leaving stock prices much higher than their actual value. Additionally, wages at that time were low, consumer debt was proliferating, the agricultural sector of the economy was struggling due to drought and falling food prices and banks had an excess of large loans that could not be liquidated.

The American economy entered a mild recession during the summer of 1929, as consumer spending slowed and unsold goods began to pile up, which in turn slowed factory production. Nonetheless, stock prices continued to rise, and by the fall of that year had reached stratospheric levels that could not be justified by expected future earnings.

Stock Market Crash of 1929

On October 24, 1929, as nervous investors began selling overpriced shares en masse, the stock market crash that some had feared happened at last. A record 12.9 million shares were traded that day, known as “Black Thursday.”

Five days later, on October 29, or “Black Tuesday,” some 16 million shares were traded after another wave of panic swept Wall Street. Millions of shares ended up worthless, and those investors who had bought stocks “on margin” (with borrowed money) were wiped out completely.

As consumer confidence vanished in the wake of the stock market crash, the downturn in spending and investment led factories and other businesses to slow down production and begin firing their workers. For those who were lucky enough to remain employed, wages fell and buying power decreased.

Many Americans forced to buy on credit fell into debt, and the number of foreclosures and repossessions climbed steadily. The global adherence to the gold standard , which joined countries around the world in fixed currency exchange, helped spread economic woes from the United States throughout the world, especially in Europe.

Bank Runs and the Hoover Administration

Despite assurances from President Herbert Hoover and other leaders that the crisis would run its course, matters continued to get worse over the next three years. By 1930, 4 million Americans looking for work could not find it; that number had risen to 6 million in 1931.

Meanwhile, the country’s industrial production had dropped by half. Bread lines, soup kitchens and rising numbers of homeless people became more and more common in America’s towns and cities. Farmers couldn’t afford to harvest their crops and were forced to leave them rotting in the fields while people elsewhere starved. In 1930, severe droughts in the Southern Plains brought high winds and dust from Texas to Nebraska, killing people, livestock and crops. The “ Dust Bowl ” inspired a mass migration of people from farmland to cities in search of work.

In the fall of 1930, the first of four waves of banking panics began, as large numbers of investors lost confidence in the solvency of their banks and demanded deposits in cash, forcing banks to liquidate loans in order to supplement their insufficient cash reserves on hand.

Bank runs swept the United States again in the spring and fall of 1931 and the fall of 1932, and by early 1933 thousands of banks had closed their doors.

In the face of this dire situation, Hoover’s administration tried supporting failing banks and other institutions with government loans; the idea was that the banks in turn would loan to businesses, which would be able to hire back their employees.

FDR and the Great Depression

Hoover, a Republican who had formerly served as U.S. secretary of commerce, believed that government should not directly intervene in the economy and that it did not have the responsibility to create jobs or provide economic relief for its citizens.

In 1932, however, with the country mired in the depths of the Great Depression and some 15 million people unemployed, Democrat Franklin D. Roosevelt won an overwhelming victory in the presidential election.

By Inauguration Day (March 4, 1933), every U.S. state had ordered all remaining banks to close at the end of the fourth wave of banking panics, and the U.S. Treasury didn’t have enough cash to pay all government workers. Nonetheless, FDR (as he was known) projected a calm energy and optimism, famously declaring "the only thing we have to fear is fear itself.”

Roosevelt took immediate action to address the country’s economic woes, first announcing a four-day “bank holiday” during which all banks would close so that Congress could pass reform legislation and reopen those banks determined to be sound. He also began addressing the public directly over the radio in a series of talks, and these so-called “ fireside chats ” went a long way toward restoring public confidence.

During Roosevelt’s first 100 days in office, his administration passed legislation that aimed to stabilize industrial and agricultural production, create jobs and stimulate recovery.

In addition, Roosevelt sought to reform the financial system, creating the Federal Deposit Insurance Corporation ( FDIC ) to protect depositors’ accounts and the Securities and Exchange Commission (SEC) to regulate the stock market and prevent abuses of the kind that led to the 1929 crash.

The New Deal: A Road to Recovery

Among the programs and institutions of the New Deal that aided in recovery from the Great Depression was the Tennessee Valley Authority (TVA) , which built dams and hydroelectric projects to control flooding and provide electric power to the impoverished Tennessee Valley region, and the Works Progress Administration (WPA) , a permanent jobs program that employed 8.5 million people from 1935 to 1943.

When the Great Depression began, the United States was the only industrialized country in the world without some form of unemployment insurance or social security. In 1935, Congress passed the Social Security Act , which for the first time provided Americans with unemployment, disability and pensions for old age.

After showing early signs of recovery beginning in the spring of 1933, the economy continued to improve throughout the next three years, during which real GDP (adjusted for inflation) grew at an average rate of 9 percent per year.

A sharp recession hit in 1937, caused in part by the Federal Reserve’s decision to increase its requirements for money in reserve. Though the economy began improving again in 1938, this second severe contraction reversed many of the gains in production and employment and prolonged the effects of the Great Depression through the end of the decade.

Depression-era hardships fueled the rise of extremist political movements in various European countries, most notably that of Adolf Hitler’s Nazi regime in Germany. German aggression led war to break out in Europe in 1939, and the WPA turned its attention to strengthening the military infrastructure of the United States, even as the country maintained its neutrality.

African Americans in the Great Depression

One-fifth of all Americans receiving federal relief during the Great Depression were Black, most in the rural South. But farm and domestic work, two major sectors in which Black workers were employed, were not included in the 1935 Social Security Act, meaning there was no safety net in times of uncertainty. Rather than fire domestic help, private employers could simply pay them less without legal repercussions. And those relief programs for which African Americans were eligible on paper were rife with discrimination in practice since all relief programs were administered locally.

Despite these obstacles, Roosevelt’s “Black Cabinet,” led by Mary McLeod Bethune , ensured nearly every New Deal agency had a Black advisor. The number of African Americans working in government tripled .

Women in the Great Depression

There was one group of Americans who actually gained jobs during the Great Depression: Women. From 1930 to 1940, the number of employed women in the United States rose 24 percent from 10.5 million to 13 million Though they’d been steadily entering the workforce for decades, the financial pressures of the Great Depression drove women to seek employment in ever greater numbers as male breadwinners lost their jobs. The 22 percent decline in marriage rates between 1929 and 1939 also created an increase in single women in search of employment.

Women during the Great Depression had a strong advocate in First Lady Eleanor Roosevelt , who lobbied her husband for more women in office—like Secretary of Labor Frances Perkins , the first woman to ever hold a cabinet position.

Jobs available to women paid less but were more stable during the banking crisis: nursing, teaching and domestic work. They were supplanted by an increase in secretarial roles in FDR’s rapidly-expanding government. But there was a catch: over 25 percent of the National Recovery Administration’s wage codes set lower wages for women, and jobs created under the WPA confined women to fields like sewing and nursing that paid less than roles reserved for men.

Married women faced an additional hurdle: By 1940, 26 states had placed restrictions known as marriage bars on their employment, as working wives were perceived as taking away jobs from able-bodied men—even if, in practice, they were occupying jobs men would not want and doing them for far less pay.

Great Depression Ends and World War II Begins

With Roosevelt’s decision to support Britain and France in the struggle against Germany and the other Axis Powers, defense manufacturing geared up, producing more and more private-sector jobs.

The Japanese attack on Pearl Harbor in December 1941 led to America’s entry into World War II, and the nation’s factories went back into full production mode.

This expanding industrial production, as well as widespread conscription beginning in 1942, reduced the unemployment rate to below its pre-Depression level. The Great Depression had ended at last, and the United States turned its attention to the global conflict of World War II.

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The 5 Most Important Lessons From the 1929 Crash That Matter Today

The Great Stock Market Crash of 1929 was a wrenching event for investors, touching off a severe bear market that eventually sent stock prices plummeting by 89% over nearly 3 years. That crash took place in late October of 1929, and its 90th anniversary is a time to review five key lessons for investors today, as they try to prepare for the next big meltdown, according to a detailed analysis in a column in The Wall Street Journal by Jason Zweig, as outlined below.

These five takeaways are: (1) " buy and hold " long term investing does not guarantee gains, (2) paying huge premiums for growth can be risky, (3) the next crash may come unexpectedly, (4) a crash may come even if corporate profits are rising, and (5) reaching the bottom may take much longer than most experts think.

Key Takeaways

The Stock Market Crash of 1929 has 5 key lessons for today.
Buy and hold investing does not guarantee long term gains.
Paying heavily for growth can be risky.
A crash may come when it is completely unexpected.
A crash may occur despite rising corporate profits.
It may take years for stocks finally to hit bottom.

Significance for Investors

The 5 lessons are explored in more depth below.

1. Buy and hold investing is not a sure bet. Even over the course of decades, it may be a losing strategy. The Dow Jones Industrial Average (DJIA) was the most-watched stock market barometer for many years both prior to and after the 1929 crash. From its peak in Sept. 1929 to its trough in July 1932, the Dow plunged by 89%. It took just over 25 years, to Nov. 1954, for the Dow to regain its Sept. 1929 peak.

However, buy and hold investors would have been receiving dividends in the interim, so they theoretically could have recouped their losses on a total return basis some years earlier. Nonetheless, still stung by the crash, only 7% of middle class households in 1954 told a Federal Reserve survey that they preferred to invest in stocks rather than savings bonds, bank accounts, or real estate.

2. Paying big premiums for growth is risky . While the shares of many major companies had P/E ratios of about 14 to 19 times earnings at the 1929 market peak, some of the premier growth companies were much more expensive. For example, Radio Corporation of America (RCA), a high-flying tech stock in today's parlance, peaked at 73 times earnings and more than 16 times book value , valuations similar to that of Amazon.com Inc. ( AMZN ) today.

Additionally, in 1929 some investors were willing to pay huge fees to entrust their money to star investment managers. In this vein, a publication called The Magazine of Wall Street claimed that it was “reasonable” to pay between 150% and 200% more than a fund’s net asset value “if the past record of management indicates that it can average 20 percent or more.”

3. Crashes are often unforeseen. Few, if any, leading market watchers in 1929 anticipated a crash. An exception was economic forecaster Roger Babson, but he had been telling investors to dump stocks since 1926. In the interim, the Dow rose by about 150% to its 1929 peak.

4. A crash may come while profits are rising. In 1929, corporate profits were growing much faster than stock prices and, as noted above, the shares of many leading companies traded at reasonable valuations by historic standards. In 2019, however, many companies are reporting profit declines.

5. A crash may take years to bottom out. The Dow lost a cumulative 23% on Oct. 28 and Oct. 29, 1929, dates known as "Black Monday" and " Black Tuesday ." Following fierce selloffs during the previous week, by this point the Dow was down by almost 40% from its high on Sept. 3, 1929. The most eminent market watchers of the day thought that the worst was over, but, as noted above, the bear market would persist into July 1932, with yet larger declines ahead.

Roger Babson finally turned bullish in late 1930 and by May 1931 he was advising investors to load up heavily on stocks. The Dow would plunge by about 70% from that point to its eventual trough in July 1932.

Looking Ahead

An old adage in investing is that "trees don't grow to the sky." The next bear market is inevitable, but when it starts, how long it lasts, and how deeply it plunges are all unknowns. Another inevitability is that pundits who predicted a crash will claim prescience, even if their timing was off by years. Roger Babson was an early pioneer in this regard.

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Stock Market Crash (1929) Simulation: Causes of the Great Depression

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Description

Bring history alive for your students! This is a one day stock market simulation that will help your students understand the major causes of the stock market crash of October 29th, 1929 while role playing and while working together! This lesson is an amazing way to start your unit on the Great Depression!

This lesson provides students with a general understanding of how the stock market operates and how stock speculation works. This lesson will bring history alive for your students!

This product includes everything you need to complete the simulation (you will have to print out some stuff ahead of time):

1. Teacher instructions ( Now includes video instructions )

2. Printable money

3. Stock market simulation PowerPoint

4. Stock sheets

5. Stock tally sheet

6. Stock information sheet

7. Sounds of floor trading and market bell

I have done this lesson numerous times with 10th and 11th graders. This lesson can be easily modified for lower grades. Enjoy!

This is a great assignment for the next day after the simulation:

First Inaugural Address of Franklin D. Roosevelt - Primary Source Analysis

You might also be interested in this product:

Crash Course: The Great Depression #33

Great Depression: Causes and Effects Graphic Organizer

You might also be interested in these other historical simulations:

Sharecropping Simulation: Cooperative Learning Activity

King George III and his Tax Collectors: A Simulation Activity

Thumbnail and product clipart credit: by Dandy Doodles (Highly Recommend)

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The causes of the 1929 stock market crash : a speculative orgy or a new era?

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Uploaded by Tracey Gutierres on May 4, 2012

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Stock Market Crash 1929 by Emily Osborne
7 3 Worksheet Causes of the Stock Market Crash of 1929.pdf
Causes of the stock market crash of 1929 plus article assignment
Stock Market Crash of 1929: Definition, Facts, Causes, Effects
Causes of the stock market crash of 1929 plus article assignment
Causes of the stock market crash of 1929 plus article assignment

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The 1929 Stock Market Crash (4th, 5th, 6th Grade History Lecture)

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Stock market crash of 1929
stock market crash of 1929, a sharp decline in U.S. stock market values in 1929 that contributed to the Great Depression of the 1930s. The Great Depression lasted approximately 10 years and affected both industrialized and nonindustrialized countries in many parts of the world. New York Stock Exchange, late 1920s.
What Caused the Stock Market Crash of 1929?
The stock market crash of 1929—considered the worst economic event in world history—began on Thursday, October 24, 1929, with skittish investors trading a record 12.9 million shares.. On ...
Stock Market Crash of 1929: Definition, Causes, Effects
Stock Market Crash Of 1929: A severe downturn in equity prices that occurred in October of 1929 in the United States, and which marked the end of the "Roaring Twenties." The crash of 1929 did not ...
What Caused the Stock Market Crash of 1929—And What Didn't
October 24, 2019 11:30 AM EDT. B y the end of Thursday, Oct. 24, 1929, the New York Stock Exchange had rebounded from the 10% dip that the market had taken earlier that day. But then stocks ...
Stock Market Crash: 1929 & Black Tuesday
The Stock Market Crash of 1929 ushered in the Great Depression, as some 16 million shares were traded on Black Tuesday, Oct. 29, 1929, wiping out many investors.
The Stock Market Crash of 1929
The financial outcome of the crash was devastating. Between September 1 and November 30, 1929, the stock market lost over one-half its value, dropping from $64 billion to approximately $30 billion. Any effort to stem the tide was, as one historian noted, tantamount to bailing Niagara Falls with a bucket.
25.1 The Stock Market Crash of 1929
The financial outcome of the crash was devastating. Between September 1 and November 30, 1929, the stock market lost over one-half its value, dropping from $64 billion to approximately $30 billion. Any effort to stem the tide was, as one historian noted, tantamount to bailing Niagara Falls with a bucket.
Stock Market Crash of 1929 Facts, Causes, and Impact
The stock market crash of 1929 was a collapse of stock prices that began on October 24, 1929. By October 29, 1929, the Dow Jones Industrial Average had dropped by 30.57%, marking one of the worst declines in U.S. history. It destroyed confidence in Wall Street markets and led to the Great Depression.
Wall Street Crash of 1929
The Wall Street Crash of 1929, also known as the Great Crash or the Crash of '29, was a major American stock market crash that occurred in the autumn of 1929. It began in September, when share prices on the New York Stock Exchange (NYSE) collapsed, and ended in mid-November. The pivotal role of the 1920s' high-flying bull market and the ...
Stock Market Crash of 1929
"The Stock Market Crash of 1929: A Review Article." Business History Review 75, no. 2 (Summer 2001): 325-351. Kohn, Donald, " Monetary policy and asset prices ," Speech at "Monetary Policy: A Journey from Theory to Practice," a European Central Bank Colloquium held in honor of Otmar Issing, Frankfurt, Germany, March 16, 2006.
The Stock Market Crash of 1929 and the Great Depression
In October of 1929, the stock market crashed, wiping out billions of dollars of wealth and heralding the Great Depression. Known as Black Thursday, the crash was preceded by a period of phenomenal ...
What caused the Wall Street Crash of 1929?
Wall Street Crash - wikipedia. The 1929 stock market crash was a result of an unsustainable boom in share prices in the preceding years. The boom in share prices was caused by the irrational exuberance of investors, buying shares on the margin, and over-confidence in the sustainability of economic growth. Some economists argue the boom….
The Great Depression (article)
The Great Depression was the worst economic downturn in US history. It began in 1929 and did not abate until the end of the 1930s. The stock market crash of October 1929 signaled the beginning of the Great Depression. By 1933, unemployment was at 25 percent and more than 5,000 banks had gone out of business.
The Great Depression
The Great Depression was a severe economic depression that began in the United States following the stock market crash in October of 1929 and lasted into the late 1930s. The depression had ...
Great Depression: Years, Facts & Effects
On October 24, 1929, as nervous investors began selling overpriced shares en masse, the stock market crash that some had feared happened at last. A record 12.9 million shares were traded that day ...
Stock Market Crash
Severe economic crisis precipitated by the U.S. stock market crash of 1929 that was unprecedented in its length and in the wholesale poverty and tragedy it inflicted on society. 1.) Prosperity of 1920's was unevenly distributed. 2.) Tariff and war debt policies.
PDF The Stock Market Crash of 1929: A Review Article
In March 1929, banker Paul Warburg blasted the "orgies of unrestrained speculation" and predicted that, un- less checked, they would "bring about a general depression involving. the entire country." As Noyes remembered it, the warning "first caused alarm, then indignation, and presently, when the stock market resumed.
The 5 Most Important Lessons From the 1929 Crash That ...
The Great Stock Market Crash of 1929 was a wrenching event for investors, touching off a severe bear market that eventually sent stock prices plummeting by 89% over nearly 3 years. That crash took ...
Stock Market Crash (1929) Simulation: Causes of the Great Depression
This is a one day stock market simulation that will help your students understand the major causes of the stock market crash of October 29th, 1929 while role playing and while working together! This lesson is an amazing way to start your unit on the Great Depression! This lesson provides students with a general understanding of how the stock ...
Chp 23. U.S. History Since 1877 Flashcards
Chp 23. U.S. History Since 1877. Get a hint. What impact did the stock market crash of 1929 have on the American economy? Click the card to flip 👆. -It exposed the shaky foundations of the 1920s economy. -It led to a widespread panic that deepened the economic crisis. -It did NOT cause the Great Depression. Click the card to flip 👆.
The causes of the 1929 stock market crash
Includes bibliographical references (p. [153]-156) and index Was the stock market too high? -- The Hatry case and the 1929 stock market crash -- The attempts to stop the speculators -- The week of March 25, 1929 -- Significant news and dates in the month of October 1929 -- Investment trusts and margin buying -- The public utility sector -- The accused -- An overview of the causes of the crash ...
Causes of the Stock Market Crash of 1929 Assignment.docx
The volume of stock sold in October 1929 created the Crash. The RCA stockspeculation It was one of the reasons prices went up then what the actual value was. Then the stocks were way over priced, eventually the market would cease to show it's true worth. Investors selling stocks at lower prices.
Causes of the Stock Market Crash of 1929 Assignment
Buying stocks on margin This had been going on throughout the 1920s. It created a lot of personal debt in America, as people borrowed money to buy stocks that they couldn't pay back unless one of those stocks got hot and could be sold at a profit. This led to the Crash by driving stock sales but failing to increase the amount of cash—real value—in the stock market.