Causes and Consequences of the 1929 Stock Market Crash

Posted on Mar 14, 2025 in History

Causes of the 1929 Stock Market Crash

Unbalanced Economic Growth:

Overproduction: The market was flooded with goods, but demand did not grow at the same pace, leading to saturation and unsold inventory.
Easy Credit: Americans were encouraged to buy on credit and accumulated significant debt.
Market Saturation: The American market became saturated, leading to declining sales.
Falling Prices: Producers reacted by lowering prices. Costs began to exceed profits. Farmers experienced difficulties in loan repayment.

Speculation:

Business profits were not invested in increasing productivity but rather in seeking quick profits in the stock market.
Market saturation and declining demand caused a decline in industrial investment.
Banks loaned money with only the acquired shares as collateral.
A growing imbalance between the stock market and the real economy. The productive economy was alienated from the encouragement of quick profits.
Credit Inflation: Credit was used for granting loans for shares. Banks fostered profitable stock market operations, lending money to brokers, charging interest, and using the shares as collateral. Mass utilization of credit contributed to the crisis.

Dependency on Savings:

The U.S. economy in the 1920s became the axis of the rest of the world.
Loans were extended even to former enemies, like Germany.
American and European economies were linked. When Hoover implemented a protectionist policy to solve their debt problems, market sales were paralyzed.
The collapse of the U.S. economy dragged down European economies, which were closely tied to the dollar and American credit. Colonial economies also fell into recession.

Reduction in Production and Bankruptcies: The industrial sector was the most affected. The agricultural sector experienced a total financial collapse.
Financial Crisis: The crisis caused many businesses to close. Many banks went bankrupt.
Falling prices and limited monetary circulation drove the overall decline in economic activity.
Paralysis of International Trade Relations: The global crisis caused stagnation of trade, as countries sought protectionist policies.
A decrease in national income. Income levels did not recover until after World War II.

Mass Unemployment: More than 30 million people were unemployed worldwide.
Lower wages impacted the decline in stocks and consumption. The productive apparatus was paralyzed.
Welfare standards in the U.S. fell significantly.
Demographic Consequences: Mortality increased, and population growth stopped. Birth rates declined. Fascist countries encouraged population growth.
People migrated to cities. Shantytowns called “Hoovervilles” concentrated more than a million people, living in cardboard houses with unsanitary conditions.
The contrast between rich and poor grew, with the impoverishment of the majority. Along with the lowest social strata, the middle class was badly affected.
Food kept the job for fascists. Those benefited from lower prices.
The feeling of injustice increased. In Europe and the USA, phenomena such as alcoholism worsened.
Political Consequences: The inability of parliamentary systems to prevent the crisis gave momentum to nationalist ideologies in some countries, like Germany and Italy.
In other countries, movements aimed at attacking the boom of totalitarianism emerged, such as the Popular Fronts.
Social Democrats disappeared from the political scene in Germany after Hitler’s rise to power. The British Labour Party suffered losses.
The sense of failure of classical politics, based on non-state intervention in the economy, gave way to a doctrine in which the state is involved in certain areas, because of the chaos of the capitalist crisis.