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Stock Market Crash of October 1929 - Social Welfare History Project

Stock Market Crash of October 1929

 

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A solemn crowd gathers outside the Stock Exchange after the crash. 1929.
Photo: Public Domain

In late October 1929 the stock market crashed, wiping out 40 percent of the paper values of common stock. When the stock market crashed in 1929, it didn’t happen on a single day. Instead, the stock market continued to plummet over the course of a few days setting in motion one of the most devastating periods in the history of the United States.

The most significant events started on Black Thursday, October 24, 1929. On that day, nearly 13 million shares of stock were traded. It was a record number of stock trades for the U.S. J.P. Morgan and a few other bankers attempted to bail out the banking system using their own money. They were unsuccessful. Their move led to a slight increase in stock price on Saturday, October 26. But over the weekend many investors lost faith in the stocks and decided to sell their shares.

When the markets reopened on Monday, October 28, 1929, another record number of stocks were traded and the stock market declined more than 22%. The situation worsened yet again on the infamous Black Tuesday, October 29, 1929, when more than 16 million stocks were traded. The stock market ultimately lost $14 billion that day.

The stock market crash crippled the American economy because not only had individual investors put their money into stocks, so did businesses. When the stock market crashed, businesses lost their money. Consumers also lost their money because many banks had invested their money without their permission or knowledge.

Even after the stock market collapse, however, politicians and industry leaders continued to issue optimistic predictions for the nation’s economy. But the Depression deepened, confidence evaporated and many lost their life savings. By 1933 the value of stock on the New York Stock Exchange was less than a fifth of what it had been at its peak in 1929. Business houses closed their doors, factories shut down and banks failed. Farm income fell some 50 percent. By 1932 approximately one out of every four Americans was unemployed.

According to historian Arthur M. Schlesinger, Jr. the most critical reasons for this economic collapse can be summarized as:

1) Management’s disposition to maintain prices and inflate profits while holding down wages and raw material prices meant that workers and farmers were denied the benefits of increases in their own productivity. The consequence was the relative decline of mass purchasing power. As goods flowed out of the expanding capital plant in ever greater quantities, there was proportionately less and less cash in the hands of buyers to carry the goods off the market. The pattern of income distribution, in short, was incapable of long maintaining prosperity.

2) Seven years of fixed capital investment at high rates had “overbuilt” productive capacity (in terms of existing capacity to consume) and had thus saturated the economy. The slackening of the automotive and building industries was symptomatic. The existing rate of capital formation could not be sustained without different governmental policies – policies aimed not at helping those who had money to accumulate more but at transferring money from those who were letting it stagnate in savings to those who would spend it.

3) The sucking off into profits and dividends of the gains of technology meant the tendency to use excess money for speculation, transforming the Stock Exchange from a securities market into a gaming-house.

4) The stock market crash completed the debacle. After Black Thursday, what rule was safe except Sauve qui peut? And businessmen, in trying to save themselves, could only wreck their system; in trying to avoid the worst, they rendered the worst inevitable. By shattering confidence, the crash knocked out any hope of automatic recovery.

5) In sum, the federal government had encouraged tax policies that contributed to over-saving, monetary policies that were expansive when prices were rising and deflationary when prices began to fall, tariff policies that left foreign loans as the only prop for the export trade, and policies toward monopoly which fostered economic concentration, introduced rigidity into the markets and anaesthetized the price system. Representing the businessmen, the federal government had ignored the dangerous imbalance between farm and business income, between the increase in wages and the increase in productivity. Representing the financiers, it had ignored irresponsible practices in the securities market. Representing the bankers, it had ignored the weight of private debt and the profound structural weaknesses in the banking and financial system. Seeing all problems from the viewpoint of business, it had mistaken the class interest for the national interest. The result was both class and national disaster.

Source: Arthur M. Schlesinger, Jr. The Crisis of the Old Order, The Age of Roosevelt 1919-1933: Houghton Mifflin Company, 1957, pp. 159-160.

For further information: “Sounds of the Crash” –  On the 70th anniversary of the great stock market crash of October 29th, 1929, Marketplace presented an audio collage of music resulting from that event. Peter Stenshoel’s collage is announced by host, David Brancaccio.

How to Cite this Article (APA Format): Social Welfare History Project. (2011). Stock Market Crash of October 1929. Social Welfare History Project. Retrieved [date accessed] from http://socialwelfare.library.vcu.edu/eras/great-depression/beginning-of-great-depression-stock-market-crash-of-october-1929/

 

16 Responses to Stock Market Crash of October 1929

  1. Robin Brown says:

    There are MANY today who need to read this article…from the White House to the home of the common man…though there may still be (in some instances) a racial divide in America, the divide between prosperity and poverty is ever widening. The debacle that now exists is living proof that we’ve learned absolutely NOTHING from history. The Gates and the Buffets of the world continue on. The “middle” try to maintain, while the “lower” try to get to/into the middleThe rich get richer and the poor…..
    As the saying goes: Those who do not learn from history are condemned to repeat it.

    • Joe Smo says:

      I may only be 16 but i completely agree with you. It points out many good fact for many uses like a research paper and also it is really informational.

      • C W says:

        I’m only 11 and doing a research paper on the Great Depression/Stock Market Crash. I totally aggree with you guys. When I was picking a topic to research, my mom kept saying do the Great Depression. She said to do it because it was going to happen again. I kind of aggree with her. Remember I am 11. Only sixth grade and I kind of understand politics. I don’t like Obama.

        • Joanna Liu says:

          I am 15 and I also completely agree with the above comment. Not only is this true, it is also full of info for a research paper, report, etc. I will definitely be using this article for my report.

    • Kyrashka says:

      In reading this article today, I can say one thing: Many of those signs are present right now! If they weren’t, I wouldn’t be on this page, since finance rarely intrigues me. With the plunge on Monday, which continued into Tuesday, stockholders’ teeth are on edge. In fact, every time the Fed Reserve mentions raising the interest rate, you can see a sudden and sharp decline in the market. Consumer confidence is at an all time LOW, rivaling that of the Great Depression, regardless of what the media is attempting to convince the public with. It isn’t working….

      It is a matter of time before the next bubble bursts, and when it does, it WILL be a big one!

  2. Fred says:

    I’m 90 I’m cool I argued with u friends

  3. Ashley says:

    i am working a paper on the stock market crash of 1920 and this page has been helpful, amercia has gone through a lot of stuff but we are steal standing. I think it is a good thing we went through all of this because it makes our what it is today.

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  5. Mia says:

    I am 13 and am doing a exit project and have to write a essay so what

  6. Lexi says:

    This website helped me learn more things I didn’t no about the crash before

  7. John P Murt says:

    It can happen again, it is a cycle market conditions are ripe because of oil. The Great recession of 2008 is a prime example of the street not being watched, but how when it is so big and complex. We still have FDR’S Implementation of the FDIC. But to what extent. It used to be said when America sneezes the world gets a cold. Not anymore now when China sneezes world gets a cold. Bring your tissues it’s going to get bumpy in 2016. Sincerely John P Murt

  8. a person says:

    you’ve helped me a lot, if only this site had a work cited

  9. sophie says:

    I am here to figure out what will happen in the next crash, due sometime in the next 15 months. here’s what the weather looks like so far, as my research continues. the major banks, having accepted the worthless governtment currency which is only backed by massive inflationary debts held in similar banks all around the world, will collapse. wage earners who have money stored in those institutions will find that exotic instruments such as derivatives are now scheduled to be backed before liquid holdings by the FDIC and many will lose their life savings. The collapse of the economies of China, Malaysia and most other emerging industrial nations will cause a domino effect that will swiftly land at the front door of the USA. Since we artificially inflated the worth of our money and actually devalued it by printing more and more of it and then artificially holding down lending rates, the worthless currency here will collapse. when that happens, industry will grind to a sudden halt, as massive layoffs and shuttering occur. massive inflation will quickly wipe out whatever is left of workers’ mo tears resources and the cost of getting goods delivered will become so prohibitive it will lead to massive food and goods shortages within months of the initial crash. the stock market, of course, will at long last, accurately reflect the actual value of shareholders’ stocks, which will mean that it will generally be left crippled. credit will be largely unavailable, or so expensive as to be untenable to procure. In the midst of this reality the only people who will make out are the super rich. You see, my little sheeple and under-educated tots who visit this article, this cataclysmic event has been orchestrated. we have all been led by the nose like good little obedient, greedy slaves. those who run the IMF, the World Bank, the Bilderberg Group and their ilk have devaluation gold on their AMEX and have bought up land and gold to secure their wealth. when the bubble bursts, they will have an excuse to end this farce of a democracy and institute martial law, followed by mass round ups of “undesireables.”. things will eventually return to normal, but it will take at least a decade. My plan is to convert all my cash to gold ingots. they take up very little room in my safe and can be converted at any time. I plan to buy land and be off grid living in a sustainable, green manner and not dependant upon the system. if I’m wrong, no harm done, this is a lifestyle I wanted anyway. if I’m right, I will be one of the few who has enough to eat every day and is comfortable. It is a bleak time, indeed.

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