Stock Market Crash of October 1929

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.

The Crash of 1929 (1990). Documentary film from BBC2.

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 https://socialwelfare.library.vcu.edu/eras/great-depression/beginning-of-great-depression-stock-market-crash-of-october-1929/