Boom Then Bust: The Great Crash of ’29 - By Paula T. Alekson
Although the signs and symptoms of a worldwide economic downturn were evident prior to the stock market crash of October 1929, the historical event lives in the minds of Americans, then and now, as the start of the “Great Depression.” The 1920’s—figuratively referred to as the “Roaring Twenties”—had been a period of great economic prosperity for the U.S. and the rest of North America. So prosperous was the market that not only experienced financiers were chasing the rainbow, but middle-class and some working-class citizens mortgaged their homes and poured cash and savings into the market to have their chance at the rainbow’s pot of gold. One shining example of economic progress was evidenced by the Dow Jones Industrial Average, which had increased to five times its value in five years (1924-1929), reaching a peak of 381.17 on September 3, 1929.
On Thursday, October 24 panic set in on an exceptionally chaotic trading floor as a record number of shares (12.9 million) were traded. A group of principal Wall Street bankers met the next day to attempt to quell the chaos by pooling their personal capital and employing an economic tactic that had halted another panic several years before; they purchased shares of U.S. Steel and shares from other well established and stable companies at prices above their actual current market value (e.g., although U.S. Steel was selling at $195 a share, they purchased it at $205). Their strategy worked to calm the market by Friday’s closing bell. However, the press’s reporting of the events of “Black Thursday” worried investors across the nation. Many decided to remove their money from the market when it opened on Monday morning. On that day, October 28, the Dow suffered a record one-day loss of 13% of its overall value. One record loss begot another, when on the next day, Tuesday, October 29, investors traded 16.4 million shares. A number of highly reputable and wealthy stock market investors tried to stem the tide of sell-offs and to model confidence in the market’s ability to bounce back. They bought many shares, but to no avail. By the end of “Black Tuesday” the stock market had lost $14 billion, bringing the total loss for the week to $30 billion. Perhaps even more depressingly, the “Great Crash” erased thirty-six years of bull market gains and would not return to these levels for another twenty-five years.
Although not technically the cause of the “Great Depression,” the crash of 1929 contributed to the beginning of economic and political strife for industrialized countries, which as a result suffered drastic declines in output (the U.S. saw a 47% decline in production) and severe unemployment (at its highest point it exceeded 20% in the U.S.), and resulted in deflation (a general decline in prices, often caused by a reduction in the supply of money or credit) in almost every country in the world. For Americans, the standard of living dropped abruptly, factories were closed, homes were lost, marriages were postponed, birthrates dropped, luxuries were abandoned for necessities, and the poor became poorer. In many families, every member—father, mother, and children—struggled to find any type of work or source of income to put food on the table. Images of breadlines and apple sellers on the streets remain ingrained in the collective American memory. Although the U.S. economy began showing signs of recovery by the spring of 1933, it would take almost another decade for the U.S. economy to return to a long-term trend of financial growth.
