Introduction
Wall Street is symbolized as the world’s largest financial market. It is one of the most important financial centers in the world. It is the center of many important financial activities, including stock trading, mergers and acquisitions, initial public offerings (IPOs), and other forms of investment banking.
Introduction to The Wall Street Crash of 1929
The Wall Street Crash of 1929 is one the major financial crises that occurred in the United States. This crisis is known as the Stock Market Crash of 1929 or the Great Crash or Black Tuesday. Black Tuesday occurred on October 29, 1929 and this event marked the beginning of the Great Depression. It is estimated that this crash wiped out $5 billion from the stock market.
The major attribute to this crash was sudden, steep decline in stock prices on the New York Stock Exchanges, leading to widespread panic and selling by investors. There were multiple reasons behind this sudden and steep decline in the stock prices. This panic selling wiped out billions of dollars from the stock market leading to catastrophic collapse.
Timeline for “The Wall Street Crash of 1929”
| October 24, 1929 A.D. | Black Thursday, The stock market experienced a declining stock prices, leading to panic selling. The Dow Jones Industrial Average drops by 11%. |
| October 28, 1929 A.D. | Black Monday, Another wave of declining share prices. The Dow Jones drops by 13%. |
| October 29, 1929 A.D. | Black Tuesday, The price of stock dropped the worst i.e. the Dow Jones dropped by 12%. This third drop caused panic among the investors, losing billions of dollars. |
| 1930 A.D. | The U.S. enters the Great Depression. U.S. faces huge unemployment and poverty |
| 1932 A.D. | The stock market realizes its lowest point, Dow Jones dropping to just 41 points. |
| 1933 A.D. | Introduction of programs under “New Deal” by then President Franklin D. Roosevelt, to strengthen the American Economy |
| 1934 A.D. | The Securities and Exchange Commission was established to regulate the stock market and protect different stakeholders from such crashes. |
Causes of “The Wall Street Crash of 1929”
There are multiple factors which combinedly led to the Wall Street Crash of 1929. This was among the modern economic crises that led to widespread economic hardship for people around the world. This event acted as the catalyst for the Great Depression. The Great Depression is the worst economic downturn in history, lasting from 1929 to 1939.
Some of the factors for causing “The Wall Street Crash of 1929” are:
Speculative Bubble
During the 1920s, the U.S. economy was roaring with economic growth and prosperity. To take advantage of this growing economy, investors heavily invested in the stock market, driving up stock prices to unsustainable levels. Such investment led to unexpected and quick profits. Such huge demand for stocks led investors to buy stocks “on margin”.
Investors started investing in stocks by borrowing money and started using stocks as collateral. When stock prices started to decline, investors were unable to repay the loans, leading to a wave of forced selling. The decrease in stock prices led the bubble to burst, leading to the widespread economic downturn of the Great Depression. The amount invested in stocks crashed, declining the spending, business investment and other economic factors.
Excessive Use of Credit
The booming U.S. economy during the 1920s made the easy availability of credit. This easy availability of credit allowed many investors to buy stocks on margin or investors invested in stocks with borrowed money. This availability of credit allowed companies to expand rapidly without sustainability.
When the market started to decline, panic selling started among the investors. This further brought the prices down as investors had borrowed debt to pay. Due to this unsustainable investment, investors were unable to repay the loans . Such defaults led to a wave of bank failures.
Lack of Government Regulation
During the 1920s’ the U.S. financial markets were largely unregulated. Due to this, there was no proper investment and risky practices in the stock market. The lack of regulation allowed the formation of a speculation bubble. There was no regulatory body for unethical practices like insiders trading and stock manipulation.
To reflect the situation of regulation prior to cash, the U.S. government introduced acts like the Securities Act and Securities Exchange Act in 1933 and 1934 respectively. Federal Deposit Insurance Corporation (FDIC) was also established after the crash. Before that, there was no designated body to look after the security market.
Overproduction
Overproduction is another significant reason for the Wall Street Crash of 1929. Economic growth was at par during the 1920s. Many industries and sectors were operating in surplus and there was oversupply of goods. Due to overproduction, over supply and low demand, many businesses experienced decline in profits.
ALso, decrease in demand led to workforce cutoff and unemployment. This again led to decrease in consumption and business profit. Investors started to speculate in stocks instead of investing in business, driving the prices of the stock market and creating the bubble.
Many businesses invested the money borrowed for business into stocks. After the burst of the bubble, such businesses were unable to pay back the borrowing, leading to bank failure.
Agricultural Depression
Of the different sectors, agriculture was one of the sectors that had overproduction of commodities i.e. crops. Short term demand, advancement in technology and efficient and effective production due to technology made farmers invest in cultivation. This led to overproduction.
High supply led to falling prices of agricultural products. Farmers who had borrowed from financial institutions to invest in crops failed to repay their debts due to declining crop prices and beard loss due to the perishable nature of the crops.
Due to this, farmers struggled to make ends meet, they started defaulting on their loans , leading to foreclosures and bankruptcies in rural areas.
Socio-Economic Impacts of the Wall Street Crash of 1929
It is clearly evident that the crash of wall street in 1929 took the world economy by storm. It not only impacted the U.S. economy, but also affected the whole world. Some of the socio-economic impacts of the Wall Street Crash of 1929 are:
Massive Unemployment
Overproduction and low demand directly affected the employment market. Businesses started cutting back on production and laid off workers. When the market crashed the unemployment reached 25% by 1932. This means one of four workers in the U.S. was unemployed after the crash. By 1932, more than 14 million people were unemployed from the national workforce.
Poverty
In this crash, many investors lost their savings. Many businesses who had bought their stocks on margin, defaulted their debt and went bankrupt. Many industries who underestimated the bubble and invested heavily in the production line, lost their business and went bankrupt. Similarly, different banks crashed. All these led to people losing money, no purchasing power and no employment, eventually the level of poverty raised in the U.S.
The number of people living in poverty increased to 58 million in 1933 from 42 million in 1929. Not only poverty, many people end their life due to hopelessness.
Homelessness
Another impact of the crash was homelessness. Unemployment and poverty led to homelessness. In New York City alone, the number of homeless people rose to 75,000 in 1932 after the crash.
The homelessness problem stretched and existed throughout the Great Depression. The number of transients in the United States increased to 1.5 million in 1932.
Bank Failures
The economic downturn led to bank failure and vice versa. The downfall of the stock market lost the investment of different investors. This loss led to contraction of credit and inconfidence in the banking system. By 1933, more than 9000 banks had failed, making the banking industry less credible. Some of the banks that failed due to crash are:
| S.No. | Name of Banks | Remarks |
| 1. | Bank of United States | Deposit lost by $ 200 million |
| 2. | National Bank of Commerce | Money lost by $ 15 million |
| 3. | Bank of America | Deposit declined by 40% |
| 4. | Chase National Bank | Deposit declined by 50% |
Similarly, there are many other banks that significantly lost the investment during the crash. Some of other such financial institutions are:
- Guaranty Trust Company of New York
- Corn Exchange Bank and Trust Company
- First National Bank of New York
- First National Bank of Philadelphia
- Central Republic Bank and Trust Company
- Bankers Trust Company
- Bank of North America
Decline in Economic Activity
Most of the leading manufacturing companies got hit by this crash financially. Almost all the companies faced the consequences of speculative bubbles and overproduction. Some of the companies that were affected during and after the crash were:
| General Motors | Ford | Chrysler | US Steel |
| Woolworths | DuPont | United States Rubber Company | Standard Oil |
| Anaconda Copper | AT&T | Bethlehem Steel | General Electric |
All of these companies were the top manufacturer or service provider in the country. With the crash, investors lost their money, depositors lost their savings, and employees lost their jobs. All these factors combinedly acted and affected other economic activities in the country. The operations and performance of such big industries and business leaders are reflected in the stock market.
General Electric shares dropped down to 210 from 360 in 50 days. Similarly,United Steel share dropped to 166 from 261. DuPont fell to 80 from 217. Similarly, most of the companies experienced the steepest fall in the stock prices.
International Economic Contraction
The crash impacted the consumption, production and investment of different industries and businesses. There was a significant drop in trade from and to the U.S. The regulatory bodies adapted the protectionist policy to protect the local businesses.
There was a sharp decline in international business. This led to the ripple effect on global financial markets. Markets that were heavily dependent on export to the U.S. got affected as the demand decreased in the U.S. due to various reasons.
Some of effects of the crash on the global economy are:
- Great Depression followed by the crash affected the European Market Countries like Germany, France and Britain had economic contraction by up to 15%
- Latin America was heavily dependent on the U.S. economy for investment and trade. After the crash , there was socio-economic instability. Latin American Export fell by 62% between 1929 and 1932. Similarly, industrial production declined by 27% between 1929 and 1932. Similarly, unemployment reached 20% in 1933.
Similarly, this stock market crash affects the global economy, from political instability to unemployment.
References