The Wall Street Crash Of 1929 Essay

The 1929 stock market crash was a result of an unsustainable boom in share prices in the preceding years. The boom in share prices was caused by the irrational exuberance of investors, buying shares on the margin, and over-confidence in the sustainability of economic growth. Some economists argue the boom was also facilitated by ‘loose money’ with US interest rates kept low in the mid-1920s.

These are some of the most significant economic factors behind the stock market crash of 1929.

1. Credit boom

In the 1920s, there was a rapid growth in bank credit and loans in the US. Encouraged by the strength of the economy, people felt the stock market was a one-way bet. Some consumers borrowed to buy shares. Firms took out more loans for expansion. Because people became highly indebted, it meant they became more susceptible to a change in confidence. When that change of confidence came in 1929, those who had borrowed were particularly exposed and joined the rush to sell shares and try and redeem their debts.

2. Buying on the margin

Related to buying on credit was the practice of buying shares on the margin. This meant you only had to pay 10 or 20% of the value of the shares; it meant you were borrowing 80-90% of the value of the shares. This enabled more money to be put into shares, increasing their value. It is said there were many ‘margin millionaire’ investors. They had made huge profits by buying on the margin and watching share prices rise. But, it left investors very exposed when prices fell. These margin millionaires got wiped out when the stock market fall came. It also affected those banks and investors who had lent money to those buying on the margin.

3. Irrational exuberance


A lot of the stock market crash can be blamed on over exuberance and false expectations. In the years leading up to 1929, the stock market offered the potential for making huge gains in wealth. It was the new gold rush. People bought shares with the expectations of making more money. As share prices rose, people started to borrow money to invest in the stock market. The market got caught up in a speculative bubble. – Shares kept rising, and people felt they would continue to do so. The problem was that stock prices became divorced from the real potential earnings of the share prices. Prices were not being driven by economic fundamentals but the optimism / exuberance of investors. The average earning per share rose by 400% between 1923 and 1929. Those who questioned the value of shares were often labelled doom-mongers.

This was not the first investment bubble, nor was it the last. Most recently we saw a similar phenomenon in the dot com bubble.

In March 1929, the stock market saw its first major reverse, but this mini-panic was overcome leading to a strong rebound in the summer of 1929. By October 1929, shares were grossly overvalued. When some companies posted disappointing results on October 24 (Black Thursday), some investors started to feel this would be a good time to cash in on their profits; share prices began to fall and panic selling caused prices to fall sharply. Financiers, such as JP Morgan tried to restore confidence by buying shares to prop up prices. But, this failed to alter the rapid change in market sentiment.  On October 29 (Black Tuesday) share prices fell by $40 billion in a single day. By 1930 the value of shares had fallen by 90%. The bull market had been replaced by a bear market.

4. Mismatch between production and consumption

The 1920s saw great strides in production techniques, especially in industries like automobiles. The production line enabled economies of scale and great increases in production. However, demand for buying expensive cars and consumer goods were struggling to keep up. Therefore, towards the end of the 1920s, many firms were struggling to sell all their production. This caused some of the disappointing profit results which precipitated falls in share prices.

Rapid growth in Real GDP during the 1920s, couldn’t be maintained

In 1929, there were already warning signs from the economy with falling car sales, lower steel production and a slowdown in housing construction. However, despite these warning signs, people still kept buying shares.

5. Agricultural recession

Even before 1929, the American agricultural sector was struggling to maintain profitability. Many small farmers were driven out of business because they could not compete in the new economic climate. Better technology was increasing supply, but demand for food was not increasing at the same rate. Therefore, prices fell, and farmers incomes dropped. There was occupational and geographical immobilities in this sector, and it was difficult for unemployed farmers to get jobs elsewhere in the economy.

6. Weaknesses in the banking system

Before the Great Depression, the American banking system was characterised by having many small to medium sized firms. America had over 30,000 banks. The effect of this was that they were prone to going bankrupt if there was a run on deposits. In particular, many banks in rural areas went bankrupt due to the agricultural recession. This had a negative impact on the rest of the financial industry. Between 1923 and 1930, 5,000 banks collapsed.

Note: If the question was – What caused the Great Depression? The answer would be slightly different. This is because some believe the Stock market crash was only partly to blame for the Great Depression (although it was a significant factor in precipitating it.)

7. Role of monetary policy

Discount Rate – Federal Reserve Bank of NY for US | St Louis

In the mid-1920s, US interest rates were kept low. However, if we look at the very low inflation rate, real interest rates were substantially positive.

US inflation in the 1920s

US inflation rate | St Louis

From 1928, the Federal Reserve began raising interest rates – partly concerned about booming share prices. Increasing interest rates to 6% played a factor in reducing economic growth and reducing demand for shares.



Wall Street during the 1929 crash.

Who was the President in the 1929 Wall Street Crash?
Herbert Hoover was the 31st US President who served in office from March 4, 1929 to March 4, 1933. One of the most important events during his presidency was the 1929 Wall Street Crash on October 29, 1929 which contributed to the period in US history known as the Great Depression.

1929 Wall Street Crash Facts for kids: Fast Fact Sheet
Fast, fun facts and Frequently Asked Questions (FAQ's) about the 1929 Wall Street Crash.

What was the 1929 Wall Street Crash? The Wall Street Crash was the collapse of U.S. Stock Market due to the panic-selling of massive amounts of stocks and shares. Between $10-$15 billion was lost in the Wall Street Crash in just one day.

When was the Wall Street Crash? The Wall Street Crash happened on October 29, 1929 (Black Tuesday)

What caused the Wall Street Crash? The Wall Street Crash was caused by a variety of different factors including the US Economic Boom, over-confidence, consumerism, overproduction, easy credit, the Stock Market boom and the 'Long Bull Market'.

What were the Effects of the Wall Street Crash? The impact and effects of the Wall Street Crash resulted in the closure of banks, bankruptcies, suicides, evictions, mass unemployment and wage cuts that led to the Great Depression. For comprehensive facts and information refer to the Causes and Effects of the Wall Street Crash

1929 Wall Street Crash Facts for kids
The following fact sheet contains interesting facts and information on the story of what happened in the 1929 Wall Street Crash for kids.

Facts about the Wall Street Crash for kids - The Story of what happened

1929 Wall Street Crash Fact 1: America was enjoying an economic boom, a period of growth and prosperity. Industries and businesses boomed and people began investing in the stock market attracted by the potential of massive profits.

1929 Wall Street Crash Fact 2: Wall Street had prospered from the 'Long Bull Market' in which stock prices rocketed from an average of $50 per share in 1922 climbing to an enormous $350 per share in 1929.

1929 Wall Street Crash Fact 3: The Long Bull Market saw more investors wishing to buy stocks than were willing to sell, which led to the continuing rise in share prices as investors competed to obtain available equity. New investors, eager to get a share in the market, bid the prices of stock up.

1929 Wall Street Crash Fact 4: Stock prices had began to rise sharply in 1926 and 1927, but the high point for the 1929 market prices was August 1929.

1929 Wall Street Crash Fact 5: American were 'Buying on Margin' to acquire their stocks - which effectively meant buying stocks with loaned money.

1929 Wall Street Crash Fact 6: By 1929 between 3 to 4 million Americans (about 10% of US households) had invested in the stock market.

1929 Wall Street Crash Fact 7: On March 25, 1929 there was a mini-crash on Wall Street. Banker Charles Mitchell managed to stop the market’s slide on this occasion but the 'writing was on the wall'. Most ignored the warning.

1929 Wall Street Crash Fact 8: During 1929 steel production was declining, construction was decreasing, automobile sales were down, and consumers were building up high debts because of easy credit.

1929 Wall Street Crash Fact 9: Despite the serious problems the stock market continued its upward momentum, heedless of real economic indicators, and stocks hit record levels month after month and the Dow Jones index had more than doubled since its low point in March 1929.

1929 Wall Street Crash Fact 10: The Bull Market could only last as long as investors were putting new money into it. By the summer of 1929 the Wall Street stock market was running out of new investors.


Facts about the Wall Street Crash for kids - The Story of what happened

Facts about the Causes of the Wall Street Crash for kids
The following fact sheet continues with facts about Facts about the Causes of the Wall Street Crash for kids.

Facts about the Wall Street Crash for kids - The Story of what happened

1929 Wall Street Crash Fact 11:  On 5th September, 1929 investor and business theorist Roger Babson made a speech at the Annual Business Conference in Massachusetts predicting that 'Sooner or later, a crash is coming, and it may be terrific'.

1929 Wall Street Crash Fact 12: By September 1929 professional investors realized that the economy was dramatically decreasing and were aware of the dangers of the 'Boom and Bust' cycle. They began to sell off their stocks.

1929 Wall Street Crash Fact 13: Share prices began to slowly fall and more investors, worried about their ability to pay off their loans, also started to sell. The downward spiral had begun and and stock prices fell further.

1929 Wall Street Crash Fact 14: On Monday, October 21, 1929 stock brokers began to make large-scale 'margin calls' demanding immediate repayment of loans from their clients. The Panic on Wall Street started to set in.

1929 Wall Street Crash Fact 15: The panic started to spread and within four days, on October 24, 1929 (Black Thursday), a record 12,894,650 shares were traded on the Wall Street Stock Market.

1929 Wall Street Crash Fact 16: On Friday October 25, 1929 Leading bankers and investors frantically attempted to stabilize the market by buying up blocks of stock that resulted in a moderate rally.

1929 Wall Street Crash Fact 17: On Monday, October 28, 1929 the stock market went into free fall and losses as high as $5 billion were reported. The contagion spread to the stock markets in Europe.

1929 Wall Street Crash Fact 18: On Tuesday, October 29, 1929  (Black Tuesday) stock prices completely collapsed. Margin buyers were forced to sell and there was panic-selling of all stocks.

1929 Wall Street Crash Fact 19: A massive 16,410,030 shares were traded on the New York Stock Exchange in a single day. Between $10-$15 billion was lost on Black Tuesday due to the plummeting share prices. Millions of Americans lost their life savings

1929 Wall Street Crash Fact 20: Share prices continued to drop and by mid-November a staggering $30 billion had been lost on the stock market.

1929 Wall Street Crash Fact 21: On November 23, 1929 the stock market hit rock bottom and then at last began to stabilize. The 1929 Wall Street was finally over. It took 23 years for the US market to recover.

Facts about the Wall Street Crash for kids - The Story of what happened

Facts about Wall Street Crash for kids
For visitors interested in the history of finance in the 1920s refer to the following articles:

Wall Street Crash for kids - President Herbert Hoover Video
The article on the Wall Street Crash provides detailed facts and a summary of one of the important events during his presidential term in office. The following Herbert Hoover video will give you additional important facts and dates about the political events experienced by the 31st American President whose presidency spanned from March 4, 1929 to March 4, 1933.

Wall Street Crash

● Interesting Facts about Wall Street Crash for kids and schools
● Summary of the Wall Street Crash in US history
● The Wall Street Crash, selling and buying stocks
● Herbert Hoover from March 4, 1929 to March 4, 1933
● Fast, fun facts about the Wall Street Crash and Margin Call
● Foreign & Domestic policies of President Herbert Hoover
● Herbert Hoover Presidency and Wall Street Crash for schools, homework, kids and children

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