- On October 29, 1929, Black Tuesday happened. Many investors lost money on the New York Stock Exchange.
- Money was also lost in Europe and Japan.
- The Great Depression (1929-39) started because of this day.
During the 1920s, the U.S. stock market increased. It reached its peak in August 1929 after a lot of speculation during the 1920s, called “The Roaring Twenties.”
The stocks were overpriced by then because production had declined, and unemployment had risen too. Other causes for this crash were low wages, debt, an agricultural sector struggling, and banks that gave out big loans that they couldn’t pay back when people needed to sell their stocks.
The Financial Boom
In the 1920s, the stock market in the US increased. It increased during President Herbert Hoover’s time. Then, the prices of stocks went high.
The Dow Jones Industrial Average (DJIA) doubled from 63 in 1921 to 381 in 1929. The Dow Jones Industrial Average is the second oldest American stock market index.
The Dow Jones Industrial Average is an index of 30 companies. It also has the name “Dow 30”. The Dow Jones was created by Charles Dow and Edward Jones in 1896.
In 1929, when the prices were high, Irving Fisher said that it looked like a “permanently high plateau.”
The financial boom happened when there was a lot of optimism. Families were happy. There were many new things, like cars and telephones. Ordinary people invested in stocks and bonds.
A new industry was created that involved people buying pieces of companies with money they didn’t have. They put down a small amount of the price, like 10%.
The rest they borrowed and the stocks that they bought were a reserve for the loan. This caused a lot more people to purchase stocks, and it helped make stock prices go up because there were more buyers.
Commercial banks that loaned money to people who wanted to buy houses or other things continued that. Other lenders gave money to people who were brokers so they could buy houses and other things.
The Federal Reserve Acts
The Federal Reserve Board and the Federal Reserve Banks felt that trading on the stock market was not as important as other things.
The Federal Reserve took action. The Board told our banks to stop lending money to speculators. The Board also warned people that speculation was dangerous.
In September 1929, the prices of stocks were going up and down. Some people say that you should buy stocks.
Then the Federal Reserve increased the rate that is used to charge to banks. Some said that this reduced economic growth and made the stock market less liquid, which means that prices could move more rapidly up or down.
In October, the bankers tried to stop people from selling their stocks. They bought blocks of shares at high prices. But investors still sold, and the prices went down.
Many people lost money in the stock market. They took it out of the market and put it into banks. Banks loaned them more money than they lost in the stock market. The sudden increase in loans made the bank weaker.
October 29, 1929: Black Tuesday
Stock prices started to fall. People were panicking, so investment companies and leading bankers tried to repurchase the stock. The market went up a little on Friday because of this.
On Monday, there was a storm. It made the market go down. Then on Tuesday in 1929, there was another big storm. There were lots of people who needed to sell their stocks. The stock prices went down completely, and 16,410,030 shares were traded n the New York Stock Exchange one day.
Billions of dollars were lost. Thousands of people lost money. It was a lot to trade, so the tickers were behind for a long time.
Investors lost their money during the Crash and could not pay their debts. Many banks closed, ordinary people lost their savings, and people lost hope for the future.
Some people could not buy things like cars and clothes. This made people lose their jobs. Workers’ wages were cut, and unemployment increased. By the end of 1929, 2.5 million Americans were without work.
In 1929, the crash of the stock market was caused by overproduction in many industries. This led to an oversupply of steel, iron, and durable goods.
When the demand for these products was not high, manufacturers sold them at a loss, and share prices began to drop. There was a recession in the agricultural industry that also influenced the financial markets.
The news in October 1929 that the public utility companies would be regulated caused people to sell. People who borrowed money to buy their stocks had to sell because they could not repay their loans.
Instead of keeping the financial system stable, the Federal Reserve did not stop banks from collapsing. The crash was made worse by the collapse of a market for foreign bonds. When Many people overseas were buying American exports, they were not buying as much anymore because they could not borrow money from banks in America.
A lack of government oversight caused the crash in 1929. There was no one telling the companies to be careful and show care.
In response to the economic crisis, Congress passed a lot of laws. These include the Glass Steagall Act of 1933, the Securities and Exchange Act of 1934, and the Public Utility Holding Companies Act of 1935.
These laws regulated the way that companies operated and were or financial transactions made. The Glass-Steagall Act reduced risk by separating investing and commercial banking activities. It also increased confidence in banks.
The Securities and Exchange Act required businesses to provide information so that investors could make informed decisions. It also created the Securities and Exchange Commission.
The Great Depression
After October 29, 1929, stock prices could only go up. There was a lot of recovery in the weeks that followed. But overall, prices continued to drop during the Great Depression until, by 1932, stocks were worth less than 20% of their value in 1929.
In the 1930s, the market dropped a lot. But it got better for a little while. Then it got worse again.
The stock market crash of 1929 was not the only thing that caused the Great Depression. It made it worse, but it wasn’t the only thing. By 1933, half of America’s banks had failed, and 15 million people were unemployed.
African Americans were the hardest hit in the Great Depression because they were usually the last to get jobs, and they would be fired first.
The Great Depression was hard for families. A storm and a drought in the Southern Plains ruined crops, causing people to move to big cities looking for work. They were called “Oakies.”
President Roosevelt created the “New Deal” to help fix the Great Depression. The U.S. economy would not fully turn around until after World War II, when American industry was revitalized.
The Great Depression led to Prohibition’s ending. Politicians thought it would help create jobs and stimulate the economy if alcohol was legalized.
Women during the Great Depression
Women fared better because many of their jobs like teaching and nursing did not depend on a fluctuating market. Some industries like coal mining and manufacturing that got hit during the Great Depression were where men predominated. Women had more stable jobs like teaching, clerical work, and domestic service.
In the 1930s, many women had been finding jobs for years. Men who used to be able to take care of their families lost their jobs. So women took those jobs too.
In 1929, there were many more people who got married than in 1939. But, the number of people who got married dropped by 22% between those years. More single women had to work and take care of themselves then.
Women’s jobs paid less, but they were not as volatile. By 1940, 90% of women’s jobs could be catalogued into ten categories like nursing, teaching, and civil service for white women. But black and Hispanic women mostly did work in domestic work.
The government needed more secretaries, and women were eager to fill those roles. There were other ways for women to work, even though they were constrained.
Some women found that they were mistreated in their jobs when they kept working. 25% of the National Recovery Administration’s wage codes mandated lower pay for women.
For black women, when more white women started to work in jobs and earn good money, it became even more challenging for them to find a job.
In 1940, only 15% of married women were employed compared to nearly half of single women. There was a bad idea when married women worked instead of their husbands. But this changed when America prepared for World War II.
Lessons to be Learned
Economists and the government learned at least two lessons after the stock market crash of 1929:
- Central banks need to be careful when they make a decision. When the bank uses money entirely policy, it can have consequences that might not be good.
- When the stock market crashes, the damage can be fixed by following what was done in 1929.