The Stock Market Crash of 1929

Turning Point in History

The Age of Prosperity For some people in the United States in the late 1920s, it seemed the good times would last forever. World War I was over, and the country was beginning to achieve superpower status. In a period known as the Roaring Twenties, the economy boomed after the war ended in 1918. For the first time, people were encouraged to buy on credit what they could not afford to pay for in cash. They bought new houses, appliances, and even automobiles in record numbers. The majority of households had a radio. Banks were even lending money to people to buy stocks in the stock market.

Herbert Hoover was elected president in 1928. During his campaign, he declared, “We in America are nearer to the final triumph over poverty than ever before in the history of any land.” However, within a year of the election, the stock market crashed, and the nation plunged into a depression. The extravagance of the Roaring Twenties had ended before the decade was over. In a very short period of time, the booming economy crumbled, creating widespread poverty throughout the United States.

Stock Market Investment and Black Tuesday Only a few people noticed in September 1929 when steel production slowed down and home construction with it. Then a few banks closed. Still, people continued to borrow money to invest in the New York Stock Exchange.

On September 3, 1929, stocks reached their all-time high. But over the next several weeks, prices declined. On Thursday, October 24, stock market prices fell suddenly and dramatically. By October 29— what came to be known as Black Tuesday—America’s biggest companies lost nearly 25 percent of their stock market value. Investors rushed to sell off their stock, hoping to get rid of stocks that were plummeting in value. Banks rushed to buy up large quantities of stock, In this photo, concerned businessmen gather in but they could not stop the massive front of the New York Stock Exchange to hear news about the stock market crash. downward trend in values. The Great Depression had begun. Image source: Library of Congress

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Turning Point in History

When the stock market experienced the massive drop on Black Tuesday in 1929, people started pulling money out of their bank accounts. Since banks needed that money to stay open, they began demanding payment for loans. Many investors could not repay their loans, leaving banks unable to pay customers who wanted to withdraw their money. Banks failed, and people were left penniless.

The Great Depression In February 1930, people across the nation were shocked by news of of well- dressed, able-bodied men standing in breadlines in New York City. Over the next several months, more and more people were put out of work as companies closed. By 1933, the unemployment rate reached nearly 25 percent.

Thousands of unemployed workers could not afford to pay their rent or mortgages. They were evicted from their homes. Work was scarce, few companies were hiring, and hundreds of people would apply for a single job opening. Homeless encampments, nicknamed Hoovervilles, sprang up across the nation.

Under President Hoover, city governments and private charities were the main sources of food and support for families. Eventually, charities began running out of money for breadlines and soup kitchens. Soon, whole cities were on the edge of bankruptcy. In 1932, for example, Chicago began laying off firemen, policemen and teachers because there was no money to pay them.

Farmers and their families in the Midwest were hit especially hard. During the boom years of the 1920s, the price of land rose, while the profit from farmers’ crops fell. Most farmers had little to no savings, yet failing banks were demanding payments on loans and mortgages. The Dust Bowl, a severe ecological disaster that lasted from 1930 to 1940, made conditions even worse. In both cities and in rural areas, people felt hurt, stunned, and desperate.

A New Approach, a New Deal Franklin Delano Roosevelt was inaugurated president in 1933, after Hoover’s four years in office. As governor of New York, he had tried slowing down the high unemployment rates through a direct work relief program. His program in New York had little success. However, Roosevelt was elected to the presidency on his promise of reforms and an end to the Depression. He called his initiatives a “New Deal” for the American people.

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Turning Point in History

As part of the New Deal, Congress created the Works Progress Administration (WPA), which provided work for thousands of people. Workers in the WPA fixed broken roads, built canals and public parks, and installed community artwork. President Roosevelt also aimed to reform the banking system to prevent severe economic crises in the future. He created the

Securities and Exchange Commission to regulate trading on the stock market. The Federal Deposit Insurance Corporation was established to insure people’s money if their banks failed.

Despite all the changes and initiatives of the New Deal, the Great Depression did not end. President Roosevelt did not want to continue the increased national spending required to end the financial crisis. Only the United States’ Roosevelt spent a lot of money to try entrance into World War II in 1941—which and end the Great Depression. However, the depression did not truly resulted in the drafting of millions of soldiers end until the United States entered and the building of millions of munitions— World War II. ended the Great Depression, and a period of recovery began.

Turning Point in History

After reading the passage, answer the following questions:

1. What was one result of the consumer culture of the Roaring Twenties? A. Steel production slowed down. B. The United States became the new superpower. C. Farmers lost money when the prices of their crops fell. D. People borrowed money to buy what they could not afford.

2. Why did the banks close during the Great Depression? A. People became unemployed and stopped borrowing. B. Stock market prices dropped suddenly and dramatically. C. Banks ran out of money when people could not pay back loans. D. Banks loaned money to people to purchase stock on the market.

3. How did President Hoover’s recovery plan differ from President Roosevelt’s plan? A. Hoover wanted to make changes on a federal level, while Roosevelt wanted to make changes on a state level. B. Hoover opened Hoovervilles across the country, while Roosevelt opened breadlines. C. Hoover encouraged city governments and charities to handle the problems, while Roosevelt made changes at a federal level. D. Hoover entered the United States into World War II, while Roosevelt declared a triumph over poverty.

4. The stock market experienced a huge crash in a single day, but the effects lasted for years. Describe how the stock market crash of 1929 affected people all over the country. Use details from the passage in your response.