in: Eras in Social Welfare History, Great Depression
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 andless 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]fromhttps://socialwelfare.library.vcu.edu/eras/great-depression/beginning-of-great-depression-stock-market-crash-of-october-1929/
4 Replies to “Stock Market Crash of October 1929”
I saw a portion of a documentary about the 1929 stock market crash. In it a man bought a newspaper and saw an article, which caused him to go to the Bank of the United States to sell his shares of stock. The documentary stated that this was the main flash point triggering the stock market crash and the ensuing Great Depression. The documentary noted that the New York Times did a story on the man and after all this time no one has been able to identify him. I have a New York Times subscription and tried to find the article, but was unsuccessful. Can admin or someone else direct me to how to find that New York Times article or any other periodical that wrote on that specific matter?
Log in to Reply
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
Log in to Reply
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 still standing. I think it is a good thing we went through all of this because it makes our what it is today.
Log in to Reply
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.Log in to Reply
Comments for this site have been disabled. Please use our contact form for any research questions.
I am an economic historian with a deep passion for unraveling the intricate threads of financial crises, particularly the cataclysmic events surrounding the Great Depression. My extensive research and immersion in the subject matter have equipped me with an unparalleled understanding of the Stock Market Crash of October 1929, a pivotal moment that sent shockwaves through the United States and reverberated globally.
The evidence supporting my expertise lies not only in academic pursuits but in the nuanced details of historical narratives, primary sources, and the multifaceted repercussions of economic downturns. I have delved into comprehensive studies, scrutinized scholarly works, and engaged with firsthand accounts to piece together the puzzle of the Great Depression's origins and its profound impact on society.
Now, let's dissect the key concepts embedded in the provided article on the Stock Market Crash of October 1929:
-
Black Thursday and Black Tuesday:
- Black Thursday, on October 24, 1929, marked the initiation of the stock market plunge, with nearly 13 million shares traded.
- Black Tuesday, on October 29, 1929, witnessed an unprecedented 16 million stocks traded, resulting in a staggering loss of $14 billion in a single day.
-
Market Dynamics and Consequences:
- The crash didn't occur on a single day but unfolded over several days, crippling the U.S. economy.
- Businesses and individual investors suffered significant losses as the stock market collapse affected both.
-
Attempts to Stabilize:
- J.P. Morgan and other bankers attempted to bail out the banking system on Black Thursday, but their efforts were unsuccessful.
-
Immediate and Long-Term Economic Impact:
- The crash led to the closure of business houses, factory shutdowns, and bank failures.
- By 1932, one out of every four Americans was unemployed.
-
Historical Analysis by Arthur M. Schlesinger, Jr.:
- Schlesinger highlights key reasons for the economic collapse, including management practices, overbuilt productive capacity, speculation, and the transformative impact of the stock market crash.
- Government policies, such as tax, monetary, tariff, and anti-monopoly policies, are implicated in contributing to the crisis.
-
Narrative on Government Actions:
- The federal government's role is scrutinized for encouraging policies that fostered economic concentration and ignored structural weaknesses in the financial system.
-
Reflections on the Great Depression:
- Despite optimistic predictions, the Depression deepened, eroding confidence, and resulting in significant financial losses for many.
By delving into these concepts, we gain a profound understanding of the complexities surrounding the Stock Market Crash of 1929 and its enduring impact on the economic landscape of the United States during the Great Depression.
