One of the main causes of the Great Depression was the stock market crash in 1929. Stock values plummeted over just a few days in October of 1929. As a result, many people lost their life savings and became homeless. This caused a ripple effect within the American economy and both individuals and businesses went bankrupt. The Great Depression then lasted for the following 10 years until 1939.
What is the stock market?
The stock market is where people buy and sell stocks, which represents owning a share or a portion of a certain company. This allows people who own stocks to take a share of the specific company’s profits. That is the main reason why people buy stocks.
Although people buy stocks to share a company’s profits, the majority of people buy and sell shares of stock through a stock exchange based on their stock price. They can profit simply off of fluctuations in the stock prices.
The stock market in the 1920’s
At the end of October 1929, the American stock market crashed when the prices of the stocks began to fall at huge rates. Numerous people lost all of their money, businesses, and jobs. It was so devastating for the entire country and it affected everyone regardless of whether they had any of their money in the stock market.
Before the stock market crash in 1929
The entire decade of the 1920’s was called the Roaring Twenties, as everything after the end of World War I was starting to pick up and prosper. Women were gaining more rights, the economy was growing at a very fast pace, and middle-class families were able to afford luxury goods.
As a result, the American people had a false sense of financial security. Everyone felt as if they were going to be rich. All of this optimism led to increasingly risky investments in the stock market in hopes that all of the stocks would go up.
As a result of all the crazy investments, the stock market grew almost 600%! The only problem was the growth in stock prices was not met by any real growth in the values of the companies represented by the stocks!
The stock market crash
People were buying stocks on the speculation that the price would continue to go up. However, because all the growth in the stock market was not built on growth in the real economy, everything started to slow down near to the end of 1929. The prices of the stocks were not going up as most people predicted, which caused massive panic among investors. Everyone started selling stocks at once which caused an even bigger drop in the stock market and, eventually led to its historical crash. Two of the worst days were October 28th and 29th, where stocks fell over 20%. They were known as “Black Monday” and “Black Tuesday.”
The aftermath of the crash
After the October crash, many attempts were made to help the stock market get back up, however, none of them worked. The stock market continued to fall over the course of the next few months until it lost over 40% of its value. By the second half of 1932, it had fallen 89%. People lost everything they had and the Great Depression would only get worse.