Wall Street Crash of 1929 and its Aftermath

Causes of the Wall Street Crash

To fund the mass consumption of the 1920s, many consumers used bank credit and loans. People placed so much confidence in the economy that they took out loans they couldn’t pay back. Many used loans to buy shares on the stock market - this was called buying shares on the margin. When confidence started failing in 1929, those people who had borrowed rushed to sell their shares and pay back their debts. This panic selling of shares caused a dramatic fall in the value of the market.

Easy access to credit gave people too much confidence in the stock market, leading to more people buying shares. This meant that stock prices became divorced from the real value of the shares.

Another cause of the Crash was a decline in demand for consumer goods. Mass production had allowed for a huge increase in production, but by 1929 firms were struggling to sell these goods. However, whilst people were buying less cars, houses and luxury goods, they still kept buying shares.

The Wall Street Crash was also caused by innate weaknesses in the American banking system - in the 1920s America had over 30,000 banks; this meant that many were prone to going bankrupt if they run out of funds. On average, more than 600 banks failed each year between 1921 and 1929. An increase in bank failures at the end of the decade triggered a run on deposits. Confidence in the banking system started to decline, and bank runs became more common.

Black Thursday

The crash began on Black Thursday, 24 October 1929. This marked the beginning of a rapid decline in the value of shares.

On 28 October - Black Monday - the market continued to fall, despite bankers efforts to prop it up. By Black Tuesday the market had fallen by another 11 per cent. Over these four days, the Dow dropped by 25 per cent. This terrified the public, leading to more people selling shares. The public’s loss of confidence had set into motion a spiral of despair. Black Thursday is remembered because it marked a loss of faith in Wall Street.

The Wall Street Crash was had a huge impact on society at all levels, right across America - this is despite the fact that a mere one per cent of the population actually had money invested in stocks or shares.

Companies and entrepreneurs struggled to get the funding they needed when share prices plummeted and in the immediate aftermath of the Crash as many as 100,000 American companies had to close, leaving many unemployed. Without any kind of unemployment benefit, people quickly fell on hard times, in turn meaning that the purchasing power of the American people dried up, further perpetuating the whole problem.

See also: The New Deal