The1920's were know as the roaring twenties for a good reason. The 1920's experienced growth in industry, technology, wages, consumer spending, and availability of cash (through the many banks that were opening up). These factors supported immense economic growth and a strong confidence in the economy.
The elite were not the only people with extra money to spend and invest. Many US citizens from all classes began investing in stocks as a way to make quick money. As more people invested in stocks, stock prices rose higher and higher. These rising stock prices looked appealing and even more people began purchasing stock and buying on margins. The result was an investment of billions of dollars into the US stock market. Many
people invested all of their savings. Some even mortgaged their homes, cashed in their savings accounts or took out loans on the speculation that the market was going to continue in its rising trend. The stock market reached its peak during the end of August and the beginning of September, 1929 when the Dow Jones (an economic indicator) reached a high of 381 - a rise of 190 points since the beginning of 1928.
October 3, 1929 and the days following saw a decline in the Dow Jones but confidence in the stock market still remained high. Most people thought that this was just a natural dip in the market and in a couple of days the prices would be back to normal. However, on October 18 the stock market began to fall abruptly. During the night of October 21 and the early hours of October 22 many banks, corporations, and overseas investors called Wall Street wanting to trade their stock. The stock market exchanges were filled with anxiety before the day even began. Each day became progressively worse until Thursday October 24 when everything broke apart.
October 24, 1929 now known as “Black Thursday” was quite a busy day on the floor exchange. However, it was not until the final two hours of the day that things became overwhelming. The New York Times reported that 2 600 000 shares were sold in the last hour of the day. Confidence in the market was shattered and everyone wanted to sell their stock before they lost everything. On this Thursday there were 12 894 650 shares traded and the Dow Jones ended the day at 299. The exchange clerks worked until five
o’clock the next morning in order to get all of Thursdays transactions through. On October 25, 1929 the New York Times reported a paper loss of four billion dollars. The weekend came and the exchanges used this time to catch up on all of the transactions and to recuperate.
On Friday major investment companies and banks bought large sums of stock, trying to reverse the effects of the week. However, by Monday when the exchanges opened panic had gripped all of the United States and thousands of investors attempted to trade in all of their shares. For the most part investors lost all they invested. For many Americans this was the entirety of what they owned. They were stripped of everything except the clothes on their back. Tuesday (“Black Tuesday”) was even worse, 16 000 000 shares were traded,
billions of more dollars were lost and the stock market collapsed as the gains of 1928 and 1929 were stripped away. Stock prices continued to drop until November 13, 1929 when they reached their all time low. By the time 1929 rolled to a close stock values had dropped by at least fifteen billion dollars.
By 1933 eleven thousand banks (almost half of the banks in the United States) that had invested their deposits in the stock market were forced to close (fraud exposed by the stock market crash was another major reason for closure). Many industries and business that had dumped their profits into stock also shut down. These closures resulting from the crash of the stock market began a decline in the United States economy. There was no confidence in the economy, the average American bought fewer things, there were fewer people with money to spend, production levels fell, and employment levels fell. These elements fueled a worldwide economic slump, the Great Depression. Every country to imposed tariffs and other laws to protect its own economic stability. One of the many
results of this was a drastic decline in foreign trade.
The United States elected a new president during these times of hardship and Roosevelt implemented many changes in their economy. “After the Great Depression, government action, whether in the form of taxation, industrial regulation, public works, social insurance, social-welfare services, or deficit spending, came to assume a principal role in ensuring economic stability in most industrial nations with market economies” (Encyclopedia Britannica). Before the crash of 1929, the stock market was regulated very lightly and these regulations were not enforced. After the crash the government imposed many new edicts to protect investors and prevent another crash. The Securities and
Exchange Commission (SEC) was formed to enforce the new regulations of the stock market. Stock exchanges had to register with the SEC and follow new rules under the Securities Exchange Act of 1934. Various other bills were passed to ban connections between commercial and investment banking, to control the behavior of bankers when collateral is involved in borrowing , to ensure that banks would have additional funds and the gold standard would remain secure. Most of these bills were passed in the five years following the great crash of 1929 as the United States government and wall street tried to regain their economic viability. It took a long time for the American public to gain back confidence in their economic system. The stock market finally took a turn for the better in 1954, as it began to assume another bull market like that of the early twenties.
Encyclopedia Britannica (Stock Market Crash of 1929)
Encyclopedia Britannica (The Great Depression)
The Two Major Stock Market Crashes
Stock Market Crash of 1929
The Dismal Scientist
1929 and the Great Depression
The Daily Progress
The Stock Market Crash of 1929
Fetherling, Doug. Gold Diggers of 1929. Toronto: Macmillan of Canada, 1979.
Geisst, Charles R. Wall Street. Oxford: Oxford University Press, 1997.
Morgan, E.V., W.A. Thomas. The Stock Exchange Its History and Functions. London: Elek Books, 1962.
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