The great Wall Street Crash of the 1930s, just before the Great Depression, has become part of the North American myth. People talk about the crash, its causes and consequences with great authority, but few people really understand the underpinnings that led to the crash and even fewer really understand the complexities associated with it. This article will provide a brief examination of the crash, analyze some of the myths that emerged during this period of American history, and also answer some questions about why the crash happened and whether such a thing could happen again.
The crash began on October 24, 1929 and the fall continued for three business days, ending on October 29, 1929 (as we have seen, the crash did not occur in the 30s as many people believe). The first day of the crash is known as Black Thursday and the last day is called Black Tuesday. The crash started when nervous spenders panicked and rushed to sell their shares – more than 13 million shares were sold on that first Thursday. In an attempt to stem the decline, a few bankers and businessmen banded together and tried to turn the numbers around by buying blue-chip stocks, a tactic that had worked in 1909. But this was only a temporary solution. Over the weekend, when the stock markets were closed, the media published summaries of the week, adding to investors’ fears. On Monday, a fearful public, nervous about the reports, waited for liquidation. Again, industrial giants and other businesses tried to stop the panic by showing their faith in the system by buying more stocks, but the decline did not stop. The market did not recover its value until almost a quarter of a decade later.
As with any myth, the Wall Street Crash of 1929 has many mythical fallacies. First, the Crash did not lead to the Great Depression. In fact, many financial analysts and historians are still not even sure how much the Crash contributed. Economic forecasts were poor before Wall Street collapsed, and those most affected by the Depression were poor people who could not afford to even think about stocks. For these people, poverty was mostly caused by very poor agricultural conditions. Nor was there a wave of suicides, as is often reported – a few investors succumbed to depression, but the number of them is considered to be very small indeed – no more than a handful.
What caused this Crash? Because the market was doing so well, many Americans were investing – far more than they could actually afford. These people were investing based on speculation. This meant they bought stocks with the intention of selling them at a higher profit in the future and borrowed money from banks to get the capital to invest. When prices started to fall, people realized they couldn’t pay their debts, let alone make money. They rushed to get out as quickly as possible. To prevent such panics in the future, speculative buying is now illegal.