The Effects of the Wall Street Crash of 1929 on American Society

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The term “the stock market” refers to the combination of different stock markets. A single stock market, such as Nasdaq or NYSE, is a place, where stocks of publicly held companies are sold or bought. Anyone can buy or trade stocks, giving them an opportunity to own a piece of a certain company. This exchange provides companies with more capital, but also provides them with risks as a stock market can also crash. The stock market is measured in points, which equal the worth of an American dollar. 

As it is open to the public when to buy or sell stocks, it can lead to a sudden rise or crash of stock prices in a market. There is not an exact percentage of stock price decline, which defines a stock market crash, however the higher the percentage-drop of the stock market, the more significant is the crash. Mostly the stock market index “Dow Jones Industrial Average”, which includes the 30 most important American companies, is used to determine the gravity of market declines and rises (Investopedia, 2018). As stock market crashes are always sudden and mostly unexpected, it causes panic among market participants fueling the crash and the decline of stock prices even more, such as the Wall Street Crash of 1929 (Nasdaq, 2018).

The 1920s, also known as the “Roaring Twenties”, was a time of a growing economy, increase in production, increase in employment and increase of happiness. Businesses started growing and people started investing. From the year 1925 to the year 1929, the number of businesses increased from 183,900 to 206,700 and sales increased from roughly 60.8 billion to 68 billion dollars (Bernice Cohen, 1997). In addition, between 1926 and 1929, the production of cars increased by over a million, which was a huge boom in the automobile market at that time, and a huge contributor to the stock market rise of the 1920s. However not only businesses expanded rapidly, but also real estate underwent a boom (Galbraith, 1955).

American consumerism flourished in the period of the twenties. The prosperity, the progress in technology, especially concerning communication and transportation, and the innovations all encouraged American citizens to buy more and consume more. The development of the First World War in manufacturing, production and efficiency were converted to the industries and homes. Electricity took over homes and cities and became the new power. Products like radios, refrigerators, washing machines and several other electronic products were easier run in your own household. Most importantly the advancements in technology were applied in industries led to mass production and cheap production, making more products available for working-class citizens.

The people were new to the mass of products on the market, the wide variety of products and the modern technologies, and they were enticed to purchase more goods and invest into new things, they did not hear from before. As the availability of products increased American lifestyles changed: Consumer goods boomed, especially the cosmetic industry, perfume industry and fashion industry. The temptation, to purchase new products was so immense that people did not care if they had to buy goods on credit, resulting in an increase of loans taken out by citizens. It is estimated that 60% of U.S citizens bought their cars on credit. As the stock market and the economy kept rising, people were not scared to be in debt, believing that the prosperity would last forever (American Historama, 2014).

In the 1920s florida was a paradise for retired workers and it was the perfect destination to spend your holidays. Due to the development of technologies in cars and planes, the beaches of Miami became an easy destination to reach, but only for the wealthy people who could afford it. The ideal climate, the perfect beaches and the unpopulated land made it ideal for people to invest. People discovered the potential of Florida and soon property prices started rising and the word spread on New York Times Square. 

Slowly more investors discovered the price increase of properties at the coast and near the coast and they saw the opportunity for profit. In an instant, buildings started rising from the ground. Similar to the stock market, speculators appeared and invested in Florida real estate, hoping that the price would increase and they could make a profit of it. At the beginning of the 1920s investments payed off and it was possible to multiply your investment capital by a hundred, but in 1926 when hurricanes swept over Florida the boom ended. Some investors got away with profit, but most speculators, who only started buying real estate shares in 1925 suffered several losses (Die Erste Weltwirtschaftskrise, Florian Pressler).

A major event that is believed to be the main reason for the Wall Street Crash of 1929 was the setback of the New York Federal Reserve Bank’s interest rate from 4 to 3.5 percent. The Administration under Herbert Hoover, the 31st President of the United States, who served during the Great Crash and the Great Depression, lowered the interest rate in 1927 to encourage people to invest more and generally increase investment in the United States. This change in policy exceeded expectations, as it created a movement of American people investing into the stock market. 

The increase of funds and the cheap loans provided by the Federal Reserve did not only benefit traders, but it also tempted American residents to speculate on the stock market and invest in stocks. A year later, in 1928, “the volume of trading had reached 3,875,910 shares, an all-time high (Galbraith, 1955, p.15).” Several months later it hit a new high of 6,503,230 shares. In 1928 companies gained an astonishing amount of points, however parallel to the growth of the companies, was the growth of loans taken out. At the end of 1928 the sum of loans reached 5.8 billion dollars raising concerns among banks.

The positive image of the stock market and the low interest rates created a euphoria around the stock market that motivated Americans to speculate on the market and try to make more profit out of their money. The optimism and confidence that shares would increase in value, led Americans to speculate and invest heavily in stocks. Americans started buying stocks on margins, where they only partly pay for the stocks and borrow the rest of the money from the bank. This action increases your capital to maximize profit, but also increases your risk due to your debt to the bank. On the one hand, it gave more people the opportunity to invest, as they didn’t have to have as much capital themselves but could just borrow it from the bank. On the other hand, it meant that just a small decrease in value of a stock would make your money disappear faster (Galbraith, 1955).

These investments by speculators then encouraged others to invest as well, believing that shares would continue to increase in value, making stock prices rise even more and exceed their actual value tremendously. The increase in investments, the optimism and the speculation that stock prices would continue to rise, created a speculative bubble (Investopedia, 2018). All these factors, the economic growth in the 1920s, the low interest rates, the euphoria around the stock market, people buying stocks on the margin and the speculation all led to the catastrophic Wall Street Crash of 1929, however, the sole cause of the crash is undeterminable.

The Wall Street Crash is said to have started on October 24 of 1929, today known as Black Thursday. Leading to this day, the stock market lost 20% of its value since its record high of 381.2 points in September, which started to cause panic among American investors, especially among the people who bought stocks on margin. The day before, Wednesday the 23rd, the volume of sold stocks reached a high number above 6 million, however that was nothing compared to the day that would approach (Payne, 2015). On October 24, the panic continued to spread, as people who bought on margin were scared of being in debt, and the speculative bubble showed signs of popping, as the market fell by 11% at the start of the day; however, major investors and bankers rallied together to buy stocks in mass to stop the bleeding of the stock market. At the end of the day a total of 12,894,650 shares were traded and the market only fell by 2% (The Balance, 2018).

On the following day the market recovered a bit only to plummet by 13% after the weekend, on Black Monday the 28th of October 1929 (Wall Street Journal, 2018). But this time investment companies and banks couldn’t stop the fall. Black Tuesday followed with a record-breaking volume of 16,410,030 shares that were traded (History, 2018) and the market lost 12% of its value (Wall Street Journal, 2018). It has been estimated that on Black Monday and Tuesday a total of 30 billion dollars were lost (New York: A Documentary Film). After Black Tuesday, the 29th of October 1929, the stock market value continued to decrease for the next three years, coinciding with the Great Depression and costing countless people their livelihoods.

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The Wall Street Crash was a big contributor to the Great Depression that followed the crash. Billions of dollars’ worth of capital invested into stocks disappeared in a matter of days and a broad spectrum of Americans lost their entire savings. (Bernice Cohen, 1997). However, that people went bankrupt after the Wall Street Crash was not the only effect, but more importantly as the market crashed, businesses and banks failed alongside.

Following the crash, the optimism and hope of ordinary Americans vanished immediately. The “roaring twenties” were officially over and the situation looked grim. The public’s trust in businesses disappeared and companies did not have enough support to recover from the crash or build up. It led to a failure of approximately 109,000 companies in the three years following 1929 (BBC, 2019). In addition, the stock market crash had a negative influence on the public’s attitude of spending money. The automobile market, which underwent a substantial boom in the 1920s, was one of the most affected markets in the Great Depression. Car sales tumbled from 4.5 million in 1929 to 1.1 million in 1932, as many people could not afford the luxury of cars after the downturn of the economy.

Ensuing the stock market crash in October, the public’s loss of optimism did not only affect businesses, but it affected banks substantially. Individuals grew increasingly worried about the safety of their capital and started to withdraw large amounts of money from banks. Usually banks only store a part of deposits locally and use the rest for other purposes. If people want to withdraw a lot of money, a bank must quickly sell their assets to provide enough capital. As the number of depositors withdrawing funds continuously increased, banks could not keep up the pace and come up with the required money, leading to unexpected insolvencies. After a few bank failures, caused by bank runs, a banking crisis developed in 1930, precipitating several bank runs across the Southeast (History, 2010*)

One of the biggest bank runs that followed the Wall Street Crash was in December 1931, as a crowd of 20,000 people gathered around a bank in the Bronx. The bank was a branch of the Bank of the United States, which had no connection to the central bank of the United States, despite its name. The bank run was caused by a rumor and led to 2,500 individuals withdrawing funds worth 2 million dollars. The following day the bank closed (History, 2010*). Following that event, an amount of 2,300 banks shut down alone in the year of 1931 and by 1932 it increased to a total of 5,000 closed banks (Cohen, 1997). In 1933 a new high of 4,000 banks were closed and in the 1930s an estimated 9,000 banks were shut down, leading to 140 billion dollars worth of deposits vanished into thin air, leaving thousands of people without their life savings (Living History Farm).

Leading to the Great Crash and the Great Depression the gap between rich and poor was widening immensely. In the late 1920s and shortly before the stock market crash, the top 1% of income earners in America received 25% of the total United States income (The Guardian, 2018). However, after the crash, the percentage for the 1% fell abruptly the following years falling to 15% in 1933 (Saez, 2016). In addition, the richest 1% of Americans owned more than 50% of American wealth and fell by around 5% until the year of 1933. This shows that the crash did affect the upper class and the rich, as there were many stock brokers and real-estate managers in the top 1% (Zucman, 2015).

Generally, the coming years of the Wall Street Crash was a suffering time for the vast majority of people, however, the upper class suffered the least from all. Some did have to lay off a few of their fancy habits, but most people of high society did not suffer major consequences and were able to keep going to fancy parties and keep going to classy venues and avoid the cruelty on the streets (PBS).

In contrast, after Black Tuesday, Irving Fisher and John Maynard Keynes, who tried to reassure people that the market was stable and it will recover shortly, were left hopeless when small investors continued to sell stocks. Their wise words did not help, and famously acclaimed economists, including them, and thousands of other well-known investors lost their entire fortune in the crash (Payne, 2015).

In 1933, 4 years after the stock market crash, while there was a peak in wealth and income quantity among the top 1%, there was peak in the unemployment rate: A total of 25% of American workers were unemployed. The rest of the workers, who were lucky to keep their jobs, were also unlucky, as wages were cut immensely, especially among middle class and working class members. Middle class jobs such as lawyers and doctors experienced a decrease in income by around 40%. Families, which were previously financially secure, now faced the danger of financial insecurity and if they lost their jobs, were very likely to become bankrupt, as job offers were very scarce at that time.

Food played another big role in the Great Depression. An average family had to learn to ration food and make the most of what one has and not waste anything. The importance of kitchen gardens grew, and an increased number of people started to try to fulfill their food needs with own garden products. Similarly, they reused cloths until they were gone and as televisions were not sold to the public yet, the radio was the main source for entertainment and education for adults. Meanwhile, parents did not have enough money to pay for trips and movies, so children met up with neighbors to play board games, card games and anything that did not require money.

In addition, more women entered the working field in that time period. This was caused by the fact that women tried to get jobs, as one wage per family was not enough to satisfy the needs of their children and themselves. Another effect, which was commonly seen in the middle class families was that families broke down. The financial downturn had psychological effects on everyone, causing marriages and families to crumble. As most women were not working at the time, the pressure on men, to have a job and get enough money to supply the family with basic needs, was enormous. Even though the divorce rate did not increase in the time of the Great Depression, a lot of men deserted their families. But not only men, also teens who could not handle the circumstances left their families to find work and food on their own. As the number of deserters increased, illegal train-hopping became the common use of transportation. (Konkel, 2018)

The people who were most affected by the 1929 stock market crash and its economic downturn, were people from the working class. As the economy was failing, banks were failing, the public started to lose trust, therefore they started to buy less, which led the businesses failing, which finally led to businesses laying off workers. The majority of those workers were in the working class and were already struggling with the low income. However, after the Wall Street Crash, as businesses started to fail, the situation worsened, and a lot of workers were fired, or their wages were cut even more. Once one was fired, the chance was basically 0% that one would find another full-time payed job. 

As already mentioned, the unemployment rate hit 25% in 1933 and only one out of 4 people had a job. A job was becoming more of a dream than a basic element of life and many unemployed workers turned to crime. Crime was the last option for unemployed parents and laid-off workers to provide for themselves (The Great Depression). Desperation overcame people and it led to stores being raided, people stealing food, clothes and everything necessary for a basic life.

The number of unemployed workers increased, but there was no help from the government in sight. Highly affected working class members, were workers in the fishing, forest and mining industry. Iron export reduced from 1.6 million tons down to 194,000 tons. Especially mining industries underwent mass layoffs, which led to protests, demonstrations and riots, which did not change anything for next years, as the rich stayed in power (Higgins, 2007).

In the Great Depression there was hardly any African American who was not in the working class. African Americans were in an even more precarious situation than white workers. The phrase “last hired, first fired” describes the situation most of African Americans were in. In comparison to white Americans, they had no financial aid after the economic failure of the stock market. The unemployment rate of African Americans is estimated to have been double or triple the rate of whites. The problem was that the Wall Street Crash caused so many whites to lose their jobs that if a job opportunity opened, it was immediately filled by a white person. It is assumed that 50% of African Americans were unemployed in 1932. In cities like Atlanta, Chicago, Pittsburgh, Philadelphia and Detroit black unemployment rates reached from 50-70% (Klein, 2018).

In addition, most charities and public programs provided less assistance for African Americans and sometimes even excluded them for certain programs, such as soup kitchens. However, this time of devastation and desperate measures also had a positive affect on the African American community, it established grounds for unity and kindled African American movements and organizations, which blossomed after the election of Franklin Delano Roosevelt, the 32nd president of the United States who instituted the New Deal.

The Wall Street Crash of 1929 is often associated with a wave of suicides, which followed the crash of the market, especially by investors who lost all savings, however this is barely true. Only about 50 people, which lost money in the crash of 1929, committed suicide in the year of 1929 and only two people jumped out of windows in Wall Street in the time of the crash (The Washington Post, 1987). Yes, the years following, the suicide rate did rise, but the rate was already on the rise years before the crash, even though the stock market was booming, and it was the “roaring twenties” (Galbraith, 1955).

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