The Stock Market Crash of 1929 and the Resulting Great Depression

The Great Depression of the late 1920’s and 1930’s was a watershed moment in the history of the United Sates. The shocking downturn in America’s economy was undoubtedly caused by many factors that came together in a perfect recipe for disaster, and ended American prosperity that began after World War I. Also, not only was America affected deeply by this economic crisis, so was just about every other major country in the world. Sharp declines in industrial production and subsequent declines in goods and services led to increased unemployment, homelessness, and impoverished lifestyles. Banking policies of the day also factored into this depressed economy, and banking panics and failures became the norm. By 1933 over one-fifth of the banks had failed and consumer spending had decreased significantly. People started holding on to their cash and there was less money to lend to businesses and individuals. The Gold Standard was affected when investors tried to exchange cash dollars for gold, after the stock Market crash of 1929. Investors that were nervous about the monetary worth of their gold and attempted to trade it in for the equivalent amount in U.S. dollars made matters worse because the Federal Reserve had raised interest rates significantly to protect the value of the dollar. This made it extremely difficult for “main street” businesses to stay afloat because they could not get loans to keep their businesses going. Also, the Smoot-Hawley Tariff Act which was written in 1929 when the economy was strong, was still signed into law by President Hoover in 1930. This Act raised United States tariffs on over 20,000 different goods imported from other countries and caused America’s trading rivals and partners to further penalize the U.S. by reducing imported and exported goods at least sixty percent. The effect of decreased trade profits caused the damage wrought by the Great depression to be even worse in scope and scale.

Crowd Outside the NYSE -October 1929

The crash of 1929 was the primary cause of the Great Depression because as noted in Karen Blumenthal’s Six Days in October: The Stock Market Crash of 1929, companies were expanding and making their businesses better by developing new products and building more manufacturing plants. The country’s auto makers, railroad barons , steel producers, and telephone companies were all created with help from the sales of stocks. However, stock sales is a risky business, and they are often never repaid like regular monetary debt; and if the business fails, stock values often fall, and stock certificates are not worth the paper they are printed on. In the article The Stock Market Boom and Crash of 1929 Revisited, Eugene N. White states that it was highly probable that a bubble was present in the 1929 stock market. This is an unjustified rise in the price or value of stocks followed by a quick decline and loss of investor interest. Investors, sensing an opportunity to make money, buy more stock thereby sending the prices higher and causing the bubble to expand. The bubble bursts when these investors all sell at once because the true value of the stock is not valid. Eugene White also says that the passage of the Smoot-Hawley Tariff was a key factor in disrupting the international economy, and that stocks declined at the same time the tariffs were signed into law. Added to this was the concept of what we toady would call “being in denial” about the impending crash. White goes on to say there was evidence of an oncoming recession because the Federal Reserve’s index of industrial production was misleading in terms of representation. Rising interest rates in the U.S. and in European markets signaled a recession was on the horizon. When trading volume increased, and quick reporting of trading prices became nonexistent, investors lost sight of their holdings; and panic selling, and account liquidations began. It seems that even the financial experts at Harvard did not anticipate the 1929 crash because in a 1931 New York Times article entitled Blames Stock Crash Partly on Harvard: Alumnus Criticises the Bulletins Issued by Harvard Economic Society, it states that Harvard needed to take responsibility for its role in the economic crisis of 1929. William P. Everets, a Boston lawyer and Harvard graduate at the time, felt that the overly optimistic stance of the Harvard Bulletin helped make the crash bigger by making readers feel that the crisis would be over in a relatively short period of time. This helped prolong the inevitable and seriously delayed the impending recovery. The initial reports put out by Harvard stated there would be an improvement in the economy by November 1929, and that a depression was highly unlikely. The recession was slated to be over by the spring of 1930, with the most difficult stage over by January of 1930, and manufacturing prospects looked promising because the economy was in recovery overall. It seems that many factors were responsible for the Great Depression but based on all of the above factors, the biggest culprit would clearly be the market crash of 1929. Hopefully, governments, corporations, banks, and citizens of the world have learned the lessons taught by the Great Depression, well enough so we never have to experience anything similar again.

Source List: "Blumenthal, Karen. Six Days in October: The Stock Market Crash of 1929." School Library Journal (New York, N.Y.) 49, no. 10 (2003): S57. https://play.google.com/books/reader? id=ytpJ0BFSofUC&pg=GBS.PP2&hl=enUS Chronology of Outstanding Financial Events during 1929: Culmination and Collapse of the Greatest of Stock Exchange Speculations. Events Before the Panic Credit Strained Early in Year, Trade Unusually Active in Midsummer. Drop in the Brokers’ Loan Incidents which Led Up to and Followed the October Crash Told in Chronological Order. January. February. March. April. May. June. July. August. September. Record of Influences Affecting the Markets of the Past Year October. November. December." New York Times (1923-), Dec 31, 1929. 32, http://www.proquest.com%2Fhistorical-newspapers%2Fchronology-outstanding-financial-events-during%2Fdocview%2F104815643%2Fse-2%3Faccountid%3D12085. Edward H. Collins. ". . . and then Suddenly the Big Bubble Burst: Suddenly it Burst THE GREAT CRASH 1929. by John Kenneth Galbraith. 212 Pp. Boston: Houghton Mifflin Company. "New York Times (1923-), Apr 24, 1955. 2, http://www.proquest.com%2Fhistorical-newspapers%2Fthen-suddenly-big-bubble-burst%2Fdocview%2F113457745%2Fse-2%3Faccountid%3D12085.

Romer, Christina D. “What Ended the Great Depression?” The Journal of Economic History 52, no. 4 (1992): 757–84. http://www.jstor.org/stable/2123226. Accessed April 11, 2022 White, Eugene N. “The Stock Market Boom and Crash of 1929 Revisited.” The Journal of Economic Perspectives 4, no. 2 (1990): 67–83. http://www.jstor.org/stable/1942891. WILLIS, BY H. PARKER. "Who Caused the Panic of 1929?" The North American Review (1821-1940), 02, 1930. 174, http://ezproxy.liberty.edu/loginqurl=https%3A%2F%2Fwww.proquest.com%2Fmagazines%2Fwho-caused-panic-1929%2Fdocview%2F137195034%2Fse-2%3Faccountid%3D12085.

Examples for Further Reading:

Anticipating the Stock Market Crash of 1929: The View from the Floor of the Stock Exchange. Cambridge, Mass: National Bureau of Economic Research, 2006. BLAMES STOCK CRASH PARTLY ON HARVARD: ALUMNUS CRITICISES THE BULLETINS ISSUED BY HARVARD ECONOMIC SOCIETY." New York Times (1923-), Jan 10, 1931. 4, http:// www.proquest.com%2Fhistorical-newspapers%2Fblames-stock-crash-partly-on- harvard%2Fdocview%2F99509382%2Fse-2%3Faccountid%3D12085. Garraty, John A. “The New Deal, National Socialism, and the Great Depression.” The American Historical Review 78, no. 4 (1973): 907–44. https://doi.org/10.2307/1858346. Accessed April 11, 2022. The Stock Market Crash of 1929: Irving Fisher Was Right! Cambridge, Mass: National Bureau of Economic Research, 2001. Images:

A solemn crowd gathers outside the Stock Exchange after the crash. 1929. US-gov - From an SSA poster: http://www.ssa.gov/history/wallst.html. Accessed April 12,2022