Causes and Effects of the Stock Market Crash of 1929 and the Great Depression
...ed in it. He signed the Revenue Act of 1926 that lowered federal income and inheritance taxes. The Secretary of Treasury at the time, Andrew Mellon, was a main influence in cutting taxes, and he was able to lower federal taxes. The Supreme Court even worsened the situation by ruling that minimum wage legislation was unconstitutional in the 1923 case of Adkins vs. Children’s Hospital. Americans invested in the stock market during the late 1920s for numerous reasons. Rising stock dividends was one cause. New investors entered the market thinking they could “get rich quick”. There was an unbroken cycle of new investors coming in and old investors leaving that kept new money flowing. Another reason for the investment was that at this time, banks made money easily accessible at low interest rates. It is possible that many people took out loans not only to buy homes and automobiles, but also to buy stock. Also, more Americans had extra money due to higher wages that they could invest. Magazines, such as Ladies Home Journal, helped promote the stock market to the American public. In an article titled “Everybody Ought to be Rich”, John Jacob Raskob, Chief Executive of General Motors and head of Democratic National Committee, suggested that every American should invest fifteen dollars a week in common stocks. During this time, industry was producing far more than what was needed and businesses were using their profits on new machinery and more workers, which in turn, increased the overproduction problem. This excess of manufacturing gave Americans a sense of security in business, which encouraged them to buy more stock. An additional motive for investors was that the stock market had no effective legal guidelines on buying and selling stock. Because of this, corporations began printing up a surplus of common stock and investors bought stock on credit. In result, most of the money in the stock market wasn’t even there. In September of 1929, stock prices started to oscillate, but Americans assumed that the varying prices were only momentary. The sales of goods were falling while stocks were soaring yet no one wanted to realize that stock profits were out of proportion to actual profits. On October 24, 1929, a Thursday, market investors began selling their stock shares at a rapid rate, quickly turning the bull market (a market characterized by rising prices) into a bear market (characterized by falling prices). Wealthy stockholders, such as J. P. Morgan, bought up stock to stop panic and to keep the market going. The market seemed steady by that evening. People began to get scared and worried over the weekend. They felt little security in the stock market after what had happened throughout the week. Naturally the next day when the exchange was open, Monday, October 28, many got rid of what stocks they had. The next day, October 29, 1929, began the infamous Stock Market Crash of 1929. The government and businesses tried to keep the American public optimistic about the stock market situation, but with disaster all around, that was a tough job. The stock market had exposed weaknesses in the financial and banking systems (over 1,300 banks closed in 1930 alone). Unemployment spread across the country at an alarming rate. By March of 1930, more than 3.2 million people were unemployed, an increase from 1.5 million before the crash. In the 1932, twelve million lost their jobs. President Hoover maintained his optimism stating that “All evidences indicate that the worst effects of the crash upon unemployment will have passed during the next sixty days,” and “prosperity is right around the corner,” quotes that later opened him to disdain as the economic situation grew worse. To many Americans, the stock market crash itself was not a big deal. To them, the depression meant unemployment, their bank closing, eviction notices, and not having enough food for their children. The unemployed usually blamed themselves for the loss of their job. From childhood Americans had been taught that if you work hard, you would prosper and live comfortably. The Great Depress...