Panic on Wall Street plunges US and world into Great Depression
It was the day of the largest sell-off of shares in US history, and set in train events that led to the Great Depression.
The roots of the events of Black Thursday – October 24, 1929 – went back to the Roaring Twenties, the decade of wealth and excess that followed the end of the First World War.
Building on post-war optimism, rural Americans migrated to the cities in vast numbers, with hopes of finding a more prosperous life in the ever-growing expansion of America’s industrial sector.
The US stock market underwent a rapid expansion. Ordinary Americans believed the stock market would continue to rise forever and invested enthusiastically in shares, but in March 1929 a small crash exposed the underlying problems in the market. Steel production declined, construction was sluggish, car sales went down, and consumers were building up large debts because of easy credit.
After the March crash, the market appeared to recover, but financial experts could not agree if this was permanent. In September 1929 financial expert Roger Babson warned that “a crash is coming, and it may be terrific”.
Despite this, a decline in September was interpreted as the market correcting itself, with many investors seeing it as a buying opportunity.
Then, on Black Thursday, it all began to go wrong. The market lost 11% of its value at the opening bell. The huge volume of shares traded meant that the report of prices on the ticker tape in brokerage offices around America was hours late, and so investors had no idea what most stocks were trading for.
Despite an attempt by Richard Whitney, vicepresident of the Exchange, to shore up prices by buying thousands of shares above their market value, the slide continued. On October 28, “Black Monday”, the Dow Jones index saw a record fall of 12.82%.
On October 29, 1929, “Black Tuesday” hit Wall Street as investors traded some 16 million shares in a single day. Billions of dollars were lost, wiping out thousands of investors. The next day, the panic selling reached its peak, with some stocks having no buyers at any price.
America and the industrialised world spiralled into the Great Depression, the deepest and longest-lasting economic downturn in the history of the Western industrialised world up to that time.
The stock market crash of 1929 was not its cause, but it did act to accelerate the global economic collapse of which it was also a symptom.
By 1932 stocks were worth only about 20% of their value in the summer of 1929.
By 1933, nearly half of America’s banks had failed, and unemployment was approaching 15 million people, or 30% of the US workforce.
Life for the average family during the Great Depression was difficult. Storms and a severe drought in the southern plains ruined crops, causing the area to be nicknamed the Dust Bowl.
The relief and reform measures in the New Deal programmes enacted by the administration of President Franklin D Roosevelt helped lessen the worst effects of the Great Depression; however, the US economy would not fully turn around until after 1939, when the Second World War revitalised American industry.