The Wall Street Crash

The wall street Crash

The stock market -- not housing starts, sales of durable goods, or the financial health of banks -- was viewed as the chief economic indicator of the U.S.

In September of 1929, stock prices began to fluctuate, but these were dismissed as temporary. What many did not realize -- or refused to admit -- was that stock prices were totally out of proportion to actual profits. Sales of goods and construction of factories were falling rapidly while stocks continued to climb. Still, very few were worried; they still accepted Adam Smith's "self-adjusting economy" as doctrine and believed the problems would fix themselves.

October 24, 1929 is known as "Black Thursday." On this day, people began dumping their stocks as quickly as they could. Sell orders inundated market exchanges, and the bull market suddenly shifted to a bear market. By that evening, the market had stabilized a bit as J.P. Morgan and other financiers bought up stock to stop the panic and keep the market afloat.

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On Friday, October 25, the House of Morgan continued to keep the market stable and it seemed that the panic was over. The weekend intervened, and as often happens to people in their free time, they began to worry. George and Martha and thousands of their friends decided to sell whatever stock they still had as soon as the market opened on Monday.

On Monday, October 28 there was another wave of sell orders. The next day, October 29, 1929, is called "Black Tuesday" and marks the beginning of the Great Crash.

This was the single most devastating financial day in the history of the New York Stock Exchange. Within the first few hours the stock market was open, prices fell so far as to wipe out all the gains that had been made in the previous year. Since the stock market was viewed as the chief indicator of the American economy, public confidence was shattered. Between October 29 and November 13 (when stock prices hit their lowest point) over $30 billion disappeared from the American economy (comparable to the total amount America spent on its involvement in WWI).

Still, optimism persisted and many leaders declared that the worst was over. J.D. Rockefeller said:

"These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again."

Popular songs of the day mirrored the transition from optimism to despair. In 1930, people sang "Happy Days Are Here Again" and the national income dropped from $87 billion to $75 billion. In 1931, somewhat more dejectedly, people sang "I've Got Five Dollars" and the national income dropped to $59 billion. The song of 1932 was "Brother, Can You Spare a Dime," when the national income fell to $42 billion, eventually dropping to $40 billion in 1933.

Former President Coolidge had this insightful observation about the economic health of the United States:

"This country is not in good condition."