On 29 October 1929, after a large-scale panic selling off of stocks lasting 5 days, the US stock market crashed. From October 28 – 29 the market lost circa $30 billion, resulting in economic turmoil. The 29th was thereafter to known as Black Tuesday.
The Wall Street Crash of 1929 and the Great Depression are often mentioned in the same breath. So linked are the two that we tend to forget that they are in fact two separate historical events.
But did the Wall Street Crash actually cause the Great Depression? Was it the only cause? If not, what else was responsible?
All was not well before the Crash
Though the 1920s were certainly prosperous for some in the US, the economy was marked by instability. There had been cycles of boom and bust, as well as a major recession in Europe in the aftermath of the First World War. European countries were in debt to the US and could not afford to buy American goods.
Furthermore, in the run-up to Black Tuesday, there had already been smaller crashes in March on and October on Wall Street, and at the London Stock Exchange in September.
The US system was unprepared for a bank run
After the crash, when a large amount of customers removed their money from thousands of small American banks, these banks were left without funds or the ability to issue credit. Many closed. This left consumers without the ability to purchase goods, which led to lots of business closures and a rise in unemployment.
Over-production and income inequality
The years of the First World War in America gave birth to a large growth in the production of manufactured goods and agricultural products due to expanding markets and advancements in technology. Both businesses and consumers financed resulting raised standards in production and lifestyle largely by purchasing on credit.
While industrial production in the US rose by around 50% during the end of the 1920s, the wages of the vast majority of workers only increased by 9%, compared to a 75% rise among the country’s richest 1%.
This disparity meant that most people’s salaries could not keep up with the rising cost of living. Nor could many businesses make up their production costs or pay off their debts.
In short, there were too many things that hardly anyone could afford. As both American and European markets fell, first farms and then industries suffered.
The Dust Bowl intensified the great depression
Severe drought conditions on the American prairies caused by extreme dust storms coupled with destructive farming practices resulted in the failure of agriculture across the American West. Around half a million Americans were left homeless and left to find work in places like California.
The Dust Bowl not only displaced agricultural workers, but also had the knock-on effect of mass unemployment among those with white-collar jobs. It placed additional burdens on the Federal government, which responded with various relief programs.
In conclusion, while the middle and upper classes lost big on the Wall Street Crash, the majority of Americans were already suffering economically. And any system in which most of the citizens cannot enjoy the fruits of their own labour is destined to fail.