Black Tuesday and the Stock Market Crash
The Wall Street Crash of 1929, also known as Black Tuesday, occurred on October 29, 1929 and refers to the day the stock market prices rapidly declined, causing investors to lose billions of dollars. Regarded as the event that marked the beginning of the Great Depression, the crash had three main causes: buying on margin, overproduction of goods, and laissez-faire government policies.
A month before the crash, the stock market had been booming because of the strong demand for American goods overseas after World War I. The market had peaked when the Dow Jones Industrial Average, which is an index that is often used as a benchmark to track stock market performance, hit 381. People were overconfident that the market would just keep growing, leading many people to “buy on margin.” Buying on margin means purchasing shares with mostly borrowed money, and because people were overconfident about the market, people felt comfortable taking on loans and banks felt comfortable issuing loans.
There was also overproduction of goods in manufacturing and agricultural industries. Because factories produced more than there was demand for these goods, there was an oversupply, which led to lower prices. Many companies suffered losses due to this, which led to their share prices plummeting.
In the background of all of this was the government’s overarching laissez-faire economic philosophy by Republican presidents. According to the laissez-faire economic philosophy, the government should not interfere in the market because the market can correct and regulate itself and government regulation will only restrain economic growth. Under the Republican administrations of Warren Harding, Calvin Coolidge, and Herbert Hoover, there was very little regulation of financial institutions and corporations, lower taxes, and decreased federal spending. These policies led to a severe wealth gap in American society and made it so that the government was not well-equipped to prevent and react to the crash. It wasn’t until after the Great Depression had begun that President Hoover started intervening in the market, which was ultimately too late.
The Wall Street Crash of 1929 was not caused by one single factor but a combination of multiple causes. The crash led to a lot of collective panic from the American people who started withdrawing money from banks. Many banks had invested the money in the market, so many people could not withdraw their money, causing the economy to spiral down even more and bringing about a sobering end to the Roaring Twenties.