Stock Market Crash of 1929

Stock Market Crash of 1929

The factors leading up to the stock market crash of 1929 and the Great Depression all had one element in common–arrogance. The bankers, the government, big business, and the investors all believed that the profits they were enjoying would never end, that the American economy was so strong that nothing could go wrong, and that no steps were necessary to safeguard against a collapse of the market and the economy. They believed this despite the fact that two earlier recessions had occurred in the 1920s, or perhaps because those recessions came and went with little lasting effect.

Whatever the economic, social and/or political lessons to be learned from the events of the 1920s which resulted in the crash of 1929, Galbraith makes clear the moral lesson: “It is that very specific and personal misfortune awaits those who presume to believe that the future is revealed to them.” The almost continuous prosperity of the decade of the 1920s persuaded those on Wall Street that the future held more of the same endless profit-taking.

The general cause of the crash most frequently mentioned in the sources consulted for this study is the “speculative orgy” of the financial community in the 1920s. At the heart of this rampant exercise of speculation was the chance to buy stock on margin. One could buy stocks on credit, using as collateral the ownership of the stock. In addition, Yee lists some of the more specific causes:

1. Many stocks were overpriced, that is, the worth of what the stock represented was not as high as the price reflected, so that, in effect, the high stock prices were an illusion waiting to crash. 2. Fraud and corruption played a part, but less than claimed by many. Insider trading, for example, was present but not widespread. 3. Margin buying is another cause, but not a major reason for the crash. 4. Federal Reserve Policy was an important cause. Monetary policy was tightened, which encouraged lowering of stock price…

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