The Wall Street Crash (AQA A-Level History): Revision Notes

The Wall Street Crash

The Wall Street Crash of 1929 stands as one of the defining moments of twentieth-century American history. While the Crash is widely regarded as the trigger for the Great Depression, historians debate whether it was the main cause of the economic catastrophe that followed. Understanding the complex causes, sequence of events, and consequences of the Crash requires examining multiple interconnected factors.

Reasons for the Crash

Explaining why the stock market collapsed in October 1929 presents challenges. The 1929 crash was not unique in American financial history—numerous panics had occurred since 1873 without causing comparable damage. The Crash resulted from several structural weaknesses in the American economy and financial system that converged in the late 1920s.

The banking system

The American banking system had become outdated by the 1920s. The Federal Reserve Board was a system of twelve regulatory reserve banks with seven members appointed by the president. This structure allowed banks to regulate themselves with minimal government interference, creating several problems.

The Reserve Banks operated primarily in the interests of bankers rather than serving national economic stability. Local banks remained outside the centralised system—over 30,000 banks operated across the USA in the 1920s, most of them small institutions ill-equipped to handle financial difficulties. This fragmentation left the banking sector vulnerable.

Over-speculation on the stock market

Throughout the 1920s, increasing numbers of Americans purchased shares as prices climbed steadily, generating a self-reinforcing bull market. Trading volumes grew substantially, particularly following Herbert Hoover's victory in the 1928 presidential election, which boosted investor confidence.

However, warning signs emerged in 1928. Shares failed to rise as dramatically as in previous years because many companies were selling fewer goods, resulting in declining profits. Fewer people proved willing to buy shares, and confidence in the market wavered. Yet instead of heeding this warning, investors allowed greed to override caution once prices began rising again, and speculation intensified.

The scale of speculation becomes apparent in the numbers: in 1925, the total stock market value stood at $27 billion, but by October 1929 it had reached $87 billion. By summer 1929, approximately 20 million Americans held shares.

Availability of easy credit

The growth of credit arrangements fundamentally altered how Americans purchased goods and investments. Consumers could buy products even without sufficient cash through hire purchase—a system allowing payment in instalments. This practice extended to share purchasing through buying on the margin—purchasing shares on credit. The Federal Reserve Board's easy credit policies actively promoted these practices.

When confidence faltered and prices fell, investors who had bought on margin found themselves unable to repay their loans, triggering panic selling.

Loss of confidence

Market stability depended largely on investor confidence. In autumn 1929, when some financial experts began selling their shares heavily before values fell further, smaller investors panicked. Observing the price decline, they rushed to sell their own shares, creating a cascade effect that led to a complete price collapse. Thousands of investors lost millions of dollars.

Historians identify various factors contributing to this loss of confidence. Rumours circulated that the Federal Reserve Bank intended to tighten credit facilities, making borrowing more difficult. Additionally, reports spread that wealthy investors who had made fortunes in the stock market, such as Bernard Baruch, were selling their holdings. These rumours, whether accurate or not, eroded confidence and prompted widespread selling.

Events leading to the Crash

September 1929: Share prices fell sharply, but no real financial panic developed. The market appeared unstable but not yet in crisis.

Saturday 19 October 1929: Shareholders began to panic as nearly 3.5 million shares were bought and sold. Prices began falling noticeably, creating anxiety among investors.

Tuesday 22 October 1929: The stock market appeared to recover, with prices improving slightly. This created false hope that the worst had passed.

Thursday 24 October 1929: This day became known as Black Thursday and proved catastrophic for Wall Street. Prices fell so rapidly that investors rushed to sell their shares. Nearly 13 million shares were sold as panic gripped the market.

Friday 25 October 1929: Leading bankers met at midday in an attempt to support the stock market by purchasing shares and restoring confidence. This intervention appeared to work as prices steadied.

Saturday 26 October 1929: President Hoover publicly assured Americans that the panic had ended and that business and banking would soon recover. His reassurances proved premature.

Tuesday 29 October 1929: This became known as Black Tuesday—the worst single day in stock market history. Nearly 16.5 million shares were traded. Shares lost all value, and many shareholders were completely wiped out financially. Reports of suicides began to emerge as the full scale of losses became apparent.

Effects of the Crash

Assessing the impact of the Wall Street Crash requires noting that even after October 1929, share prices remained higher than they had been throughout the previous year. What had been eliminated were the spectacular gains made during 1929 itself. Nevertheless, the Crash produced profound and lasting consequences.

The Crash caused many businesses to collapse entirely. Individuals lost billions of dollars. Thousands faced bankruptcy, and several high-profile suicides occurred.

Ordinary Americans had lost so much wealth that far less money remained in the economy for consumer spending. This reduction in demand further slowed economic activity, pushing the economy deeper into depression. Workers lost their jobs as businesses struggled or failed, leaving even less money circulating in the economy.

The Crash triggered a collapse of credit throughout the financial system. Banks called in existing loans and refused to issue new ones. This credit squeeze caused demand and business activity to fall dramatically, as neither consumers nor businesses could access the funds needed to maintain normal economic operations.

Perhaps most importantly, the Crash destroyed confidence in the American economy. Wall Street had symbolised the prosperity and apparent security of the 1920s. Those who had warned about the dangers of over-speculation and buying on the margin had been largely ignored as people listened instead to the confident assurances of Presidents Coolidge and Hoover. Once the Crash occurred, these voices were discredited, and national confidence sank to rock bottom. This psychological impact deepened and prolonged the Depression, as fear and uncertainty paralysed economic decision-making.