Reasons for the Stock Market Crash of 1929

Economics / April 23, 2015 / No Comments /
A discussion of the reasons behind the 1929 stock market crash.

This paper is a discussion of the events and factors that led to the stock market crash of 1929. Elements of discussion include over-speculation, foreign investment and England’s economic policy.
The Stock Market crash of 1929 was a disaster for America and the world. The market plunged to new depths over a short period of time. There is no one reason for the crash of the market, nor is there any one person to blame for not foreseeing the problematic economic climate that was brewing in the years before the crash. After World War I, America was poised to take a leading role in the economy of the world and as a result, experienced dramatic financial growth. During the 1920s, the decade leading up to the crash of the market, the American people were enamored with the idea of luxury and prodigal spending. America seemed to overflow with prosperity and the average American felt that they were entitled to a portion of the financial growth. This mindset led to the dangerous practice of buying stock shares on margins and speculating. This enabled the investor to gain a maximum profit with the minimum expense and to buy a much larger amount of stock than he would have been able to without speculating. This led to an artificial rise in prices without any real gain in value. This, it turn, produced a precarious situation, the dangers of which are evidenced by the Florida real estate market of the mid-twenties. As a result of speculation, a massive inflow of business flooded into the stock market, which caused the average rate of return of the market jumped dramatically. Foreign businesses, seeing the lucrative possibilities in the market, began pouring their wealth into the American economy. This was also due to the fact that the English economy was set back to the gold standard, which made it more difficult for foreign countries to trade with England. Therefore, they poured their funds into the trade friendly U.S. economy. This, in turn, provided more capital with which more investors could buy on margins. All of these factors combined to create the dangerous environment that was necessary for the gigantic Stock Market crash of 1929.

Leave a Reply