Lecture Notes: The Stock Market Crash of 1929

Key Themes

• Optimism and Prosperity:

  • 1920s were prosperous for many, especially in urban areas.
  • There was a sense of unlimited success; economic plateau was believed to be reached.

• Economic Disparities:

  • Rural areas, particularly farming, were struggling despite urban prosperity.

The Crash: Overview

• Definition of Crash:

  • Term used to describe the sudden collapse of stock prices.
  • Crash implies a fall from a height; metaphorically, an 'airborne collapse.'

• Early Signs:

  • By summer 1929, signs of trouble began to surface: rising unemployment, falling automobile sales, and failing farms.
  • Wall Street's optimism remained unchanged despite these warnings.

• Speculative Bubble:

  • Excessive speculation disconnected Wall Street from the real economy.
  • The economy had begun to cool in 1928, leading to a speculative bubble.

Key Events Leading to the Crash

• August 1929:

  • Dow Jones reached an all-time peak despite economic warnings.
  • Frenzied buying behavior in the stock market.

• Warnings Ignored:

  • Economist Roger Babson predicted a coming crash, but many brushed off concerns.
  • On October 23, 1929, initial panic selling started.

The Days of the Crash

• October 23, 1929:

  • Panic selling began with blue-chip stocks.

• October 29, 1929 (Black Tuesday):

  • Another wave of panic ensued, leading to record sell-offs.
  • No rescue effort was effective this time; the market continued to plummet.

• Market Impact:

  • On October 29, 16 million shares were traded, leading to a loss of $4 billion in one day.
  • Total loss for the week exceeded $30 billion, surpassing wartime expenditures.

Aftermath and Impact

• Losses Experienced:

  • Small investors faced devastating losses, losing life savings and homes.
  • Financial experts attempted to reassure investors, predicting temporary effects.
  • Some believed the market would recover quickly, while others feared long-term consequences.

• Long-Term Effects:

  • The crash is remembered as the beginning of the Great Depression.
  • Despite being connected in memory, the crash and the depression were not directly correlated.
  • The crash starkly contrasted the prior decade's prosperity with the ensuing economic hardship of the 1930s.