The Wall Street Crash of 1929

The Wall Street Crash of 1929 was not the main reason for the Great Depression. It mainly triggered the occurrence of the Great Depression. The stock crash “was not the cause of economic downturn but rather a symptom.”

          After the end of World War I, 1920s was a period of affluence and prosperity in America. Since the economy grew, the value of shares rapidly increased. This economic boom was called as “Roaring Twenties”.

In these years, there was a rapid growth in bank loans and credits. People were inclined to borrow more in order to buy shares of stocks because during that time stocks are attractive. “By 1929, 2 out of every 5 dollars a bank loaned were used to purchase stocks.” Furthermore, you didn’t need cash in order to get hold of stocks because you can buy stocks “on a margin.” Buying stocks on a margin meant “you only need to pay around 10-20% of the value of shares, the rest is on credit.” This made the stocks even more attractive and this increased its value. Moreover, people kept on investing on stocks because of their high expectations of making more money. Because more people are investing, stock prices increased. People believed that stock market is a potential for making large gains while investing less cash. People were encouraged to buy more shares of stock based on the confidence that stocks prices will keep on rising.

In October 1929, the New York Stock Exchange crashed and crashes in other stock exchanges in the country and aboard followed. Millions of people are affected; most of them are those who did not own stocks. The consequences of the stock market crash were harsh. The Wall Street Crash launched the beginning of a decade of downturn in the economy and ways of life of people, not just the United States of America but also other countries in Europe. There was high unemployment, poverty, bankruptcy, deflation, lost business opportunities and lost technological advancement. “In total, $25 billion — some $319 billion in today's dollars — was lost in the 1929 crash.”

According to History Learning Site, the following are the impacts of Wall Street Crash:

1. 12 million people out of work
2. 12,000 people being made unemployed every day
3. 20,000 companies had gone bankrupt
4. 1,616 banks had gone bankrupt
5. 1 farmer in 20 evicted
6. 23,000 people committed suicide in one year - the highest ever

On October 24, 1929, there was a massive amount of selling of stocks causing prices to go down. Banks and investors were heavily affected causing bankruptcy and insolvency. Those who took loans and credits in the bank rushed to sell their shares and tried to pay off their debts. Banks were prone to bankruptcy if there was a run on deposits. “Between 123 and 1930, 5,000 banks in the US collapsed.”

There was a mismatch between production and consumption. Increase in stock prices triggered the increase in demand for goods and services. Companies and firms tried to increase production to keep up with the demand. So when the stock market crashed, consumers are not willing to buy anymore. Companies were struggling to sell all their production. This caused lower profits for companies especially the automobile, steel and housing industry.