How the 1929 Stock Market Crash Triggered an Economic Crisis

Carter Gunnells

History 202

Tanja Bacani

11/16/2024
 Gunnells 2

The October 29, 1929, stock market crash set off a chain reaction that caused the U.S. to dive into

the Great Depression. The nosedive of the stock market showed how fragile the stock market and

economy were for consumers and economic stability. The United States and the World had just come out

of a war. The Roaring Twenties was a time when people relaxed, spent money, and thought that things

would only get better. The nation had no idea what was about to hit them. The Great Depression caused

severe unemployment and inflation in currency in more countries than just America. This event was felt

across the entire world. The 1929 stock market crash was a big part of The Great Depression because it

led to less consumer spending, businesses closing, fear of investing, lack of trust in banks, and

unemployment.

Due to the crash of 1929, consumer spending which had been high suddenly became very low.

The Wall Street Crash was the “greatest economic disaster in modern history.” This crash became known

as “Black Tuesday” and signaled the beginning of the great depression. (5) From 1921 to 1929,

consumers spent 45% faster than before, which outgrew government and business spending. (4). But,

problems occurred when unemployment rose such as stock prices being higher than their value and

consumers began to increase. There was also a drought, which meant agricultural parts were struggling.

People started to take out loans and used the money to invest. This led to stock prices being heavily

over-inflated. People then began to withdraw their stocks, leading to a crash in the stock market. On

Black Tuesday, 16 million shares were traded. (5) Consumers stopped spending their money, leading

businesses to fire workers because they needed to cut costs on labor. (2) Newspapers were the primary

source of information at this time, and their headlines shocked the nation. They did not hold back on how

bad everything was. (5) Less consumer spending was also seen in the automobile industry which led to

their profit slowing down. The government did not want to get involved in the lives of people so they left

them to fend for themselves. The nation struggled because of this mentality and there was little hope for

people and the lack of government help created much uncertainty. (5) Due to low confidence in the
 Gunnells 3

economy after the crash, people stopped spending money which led to more problems tied to the Great

Depression.

Because consumers were spending less money, many businesses started losing revenue. This,

along with the lack of trust in people's money caused business investments to fall quickly. (1) In 1929,

President Hoover persuaded businesses not to cut wages because of the crash. The businesses did not cut

wages. However, businesses decided to fire employees who were not as good at their jobs as others.

Businesses started cutting costs, streamlined options and changed the way they operated/ (4). Smaller

businesses started to wither away, and big businesses stayed. However, the big businesses were eventually

hit financially, as investments would start to slow down. The Hawley Tariff Act brought steep tariffs,

averaging a 20% increase, on many industrial and agricultural products. (1)

Banks also stopped investing in businesses which led to the downfall of many businesses. The

fast-growing stock market in the 1920s, “made buying stocks and shares appealing to ordinary

Americans.” (5) However, people stopped investing in businesses after the stock market crash because

they were scared of losing their money. With this, many investors would lose confidence in the stability of

their banks and would ask for cash deposits. This would force many banks to liquidate loans to

supplement their on-hand, low cash reserves. When the stock market crashed, people ran to collect their

money from banks. However, banks did not keep large amounts of cash. Instead, the banks had invested it

into companies to create revenue for themselves. This scenario caused chaos because they did not have

enough money to hand out to the people who were coming in to withdraw from their banking accounts.

(1) . Investments were a huge deal as this would help increase the businesses and would help create more

jobs. However, with the decline in investment, many businesses could not be sustained due to a lack of

money.

With businesses closing due to a lack of money, many people were laid off from their jobs. This

led to around 15 million people being unemployed. The unemployment rate after the crash rose to a peak
 Gunnells 4

of 22% in the United States. But many cities, such as Cleveland, would have a harder time, and consumer

unemployment rates went up to o 50% unemployment rates. The Federal Government tried to help the

economy by lowering interest rates from 6% to 2.5%, but then increased rates in 1931 back to 3.5% to

protect gold. (3) Because many people lost their jobs, people caused riots and crime increased as people

worked hard just to get a place to live. People would actually ask to be thrown in jail just so they could

have warmth and food. (3) With how bad the economy was doing, many farm prices would fall, which

meant many farmers would lose their homes and land. Crops were cheap which made farmers unable to

make a living corn was sold for around 20 cents old and new corn would be even cheaper. (7) With

farmers losing their land and high unemployment rates, people started moving around in hopes of finding

new jobs. Many farmers would go to California because they viewed this as a new land for milk and

honey. (6) All of the problems with banking and the stock market combined with the lack of confidence

from consumers lead to recessions. Workers lost confidence and spent less which “caused other

companies to lay off workers” who then did not spend their money. This type of activity created a

downward spiral. (3)

The stock market crash of 1929 triggered a chain of reactions that would cause the U.S. into the

Great Depression. Due to a lack of consumer spending and no confidence in the economy, businesses

struggled and had to lay people off. People had no money to invest or money to spend. Millions of people

were left jobless. Crime rates increased. The Federal Government did little to help or did the wrong

things which in turn caused more distrust. All of these things together created an economic downturn that

caused the Great Depression.

1
1. Encyclopædia Britannica, October 23, 2024.
https://www.britannica.com/event/Great-Depression/Causes-of-the-decline.

2. “Great Depression: Black Thursday, Facts & Effects.” History.com. Accessed November 16, 2024.

https://www.history.com/topics/great-depression/great-depression-history.
 Gunnells 5

3. “8 Stock Market Crash & Great Depression.” History hub. Accessed November 16, 2024.

https://sites.austincc.edu/caddis/stock-market-crash-great-depression/.

4. Burner, Robert F. The Great Crash of 1929: A Look Back After 90 Years. Accessed October 6, 2024.

https://onlinelibrary.wiley.com/doi/pdf/10.1111/jacf.12374

5. Samples. “The Wall Street Crash as Reported in 1929.” Historic Newspapers, November 3, 2021.

https://www.historic-newspapers.co.uk/blog/wall-street-crash-newspaper-headlines/#:~:text=The%20Dail

y%20Mirror%20published%20the,that%20they%20would%20become%20worthless.

6. “Great Depression Facts.” FDR Presidential Library & Museum. Accessed November 16, 2024.

https://www.fdrlibrary.org/great-depression-facts#:~:text=throughout%20the%201920s.-,At%20the%20h

eight%20of%20the%20Depression%20in%201933%2C%2024.9%25%20of,economic%20disaster%20in

%20American%20history.

7. Clara Ackerman Diary. Accessed November 16, 2024.

https://iowahist.uni.edu/Social_Economic/Clara_Ackerman/clara_ackerman_diary.htm#:~:text=At%20Le

Mars%20the%20militia%20was,is%20so%20much%20agitation%20everywhere.&text=Well%2C%20the

%20national%20farm%20strike,if%20we%20can%20keep%20up.