The Wall Street Crash was a pivotal event of the 20th century, marking an end to the Roaring Twenties and plunging the world into a devastating economic depression. This global financial crisis would go on to raise international tensions and heighten nationalist economic policies around the globe, even, some say, hastening the arrival of another global conflict, World War Two.
But, of course, none of this was known when the stock market crashed in 1929, on what would later become known as Black Tuesday.
So, what exactly was the Wall Street Crash: what precipitated it, what caused the event itself and how did the world respond to this economic crisis?
The Roaring Twenties
Although it took several years, Europe and America slowly recovered from World War One. The devastating war was eventually followed by a period of economic boom and a cultural shift as many sought new, radical ways of expressing themselves, whether it be in bobs and flapper dresses for women, urban migration or jazz music and modern art in cities.
The 1920s proved to be one of the most dynamic decades of the 20th century, and technological innovations – such as the mass production of telephones, radios, film and cars – saw life irreversibly transformed. Many believed the prosperity and excitement would continue to grow exponentially, and speculative investments in the stock market became increasingly appealing.
As with many periods of economic boom, borrowing money (credit) became easier and easier as construction and steel production in particular rapidly increased. As long as money was being made, restrictions would stay relaxed.
Although, with hindsight, it’s easy to see that periods such as this rarely last for long, brief stock market wobbles in March 1929 should have been warning signs to those at the time, too. The market began to slow, with production and construction declining and sales dropping off.
Despite these telltale suggestions that the market was slowing, investment continued and debts increased as people relied on easy credit from banks. On 3 September 1929, the market reached its zenith as the Dow Jones Stock Index peaked at 381.17.
Less than 2 months later, the market crashed spectacularly. Over 16 million shares were sold in one day, known today as Black Tuesday.
It was a combination of factors that caused the crash: longstanding overproduction in the United States led to supply massively outstripping demand. Trade tariffs imposed on the United States by Europe meant it was extremely expensive for Europeans to purchase American goods, and so they could not be offloaded across the Atlantic.
Those who could afford these new appliances and goods had bought them: demand dwindled, but output kept going. With easy credit and willing investors continuing to pour money into production, it was only a matter of time before the market realised the difficulty it was in.
Despite desperate attempts by major American financiers to restore confidence and calm by buying thousands of shares at well above the prices they were worth, panic had set in. Thousands of investors tried to get out of the market, losing billions of dollars in the process. None of the optimistic interventions helped stabilise prices, and for the next few years, the market continued on its inexorable slide downwards.
The Great Depression
Whilst the initial crash was on Wall Street, virtually all financial markets felt the fall in share prices in the final days of October 1929. However, only around 16% of American households were invested in the stock market: the ensuing recession was not solely generated by the stock market crash, although the wiping out of billions of dollars in a single day certainly meant that purchasing power dropped dramatically.
Business uncertainty, a lack of available credit and manual workers being laid off over a longer period of time all had much bigger impacts on the lives of ordinary Americans as they faced increasing uncertainty over their income and the security of their jobs.
Although Europe didn’t face such a dramatic turn of events as America, the uncertainty felt by businesses as a result, combined with a growing global interconnectedness across financial systems, meant that there was a knock-on effect. Unemployment grew, and many took to the streets in public demonstrations in order to protest at a lack of government intervention.
One of the few countries to deal successfully with the economic struggles of the 1930s was Germany, under the new leadership of Adolf Hitler and the Nazi Party. Massive programmes of state-sponsored economic stimulus got people back to work. These programmes centred on improving Germany’s infrastructure, agricultural output and industrial endeavours, such as the manufacturing of Volkswagen vehicles.
The rest of the world experienced sluggish moments of growth throughout the decade, only really recovering when the threat of war was on the horizon: rearmament created jobs and stimulated industry, and the need for soldiers and civilian labour also got people back into work.
The Wall Street Crash led to assorted changes in the American financial system. One of the reasons the crash proved so catastrophic was that at the time, America had hundreds, if not thousands, of smaller banks: they collapsed rapidly, losing millions of people money as they did not have the financial resources to cope with a run on them.
The United States government commissioned an inquiry into the crash, and as a result it passed legislation designed to prevent such a disaster from ever happening again. The inquiry also revealed an assortment of other major issues within the sector, including top financiers not paying income tax.
The 1933 Banking Act aimed to regulate assorted aspects of banking (including speculative activity). Critics argued it stifled the American financial sector, but many argue that it actually provided unprecedented stability for decades.
The memory of the biggest financial crash of the 20th century continues to loom large, both as a cultural icon and as a warning that booms often end in bust.