The Great Depression represents the world’s worst economic downturn in the past century. It occurred in between 1929 and 1939 and was caused by the stock market crash of 1929 and the reduced purchasing power of the market. Each of the two causes lessened trade and available capital for investment. Also, both reasons reduced the US economy’s ability to recuperate and grow.
Stock Market Crash of 1929
The stock market of crash of 1929 occurred for four days and began on October 24th 1929. It represented the worst crash of the US stock market and depicted a relatively significant decrease in stock prices. As thus, the Dow Jones value during the four days dropped by twenty-five percent and the stock market lost over thirty billion dollars in market value. While such figures might seem low, Amadeo suggests that in today’s market, the 1929 loss represents about three hundred and ninety-six billion dollars. After World War 1, a majority of investors lost their confidence in the Wall Street market and desisted from conducting trades.
The Great Depression’s Black Thursday
During the first day of the stock market crash, also known as Black Thursday, the Dow Jones opened at 305.85 (Kersten & Podair). However, it immediately decreased by eleven percent thus showing a stock market correction. Most investors welcomed the fall and bought shares to bolster the market. Consequently, the stock markets showed a threefold increase in the regular trading volume. The investor’s strategy thus worked and improved the Dow Jones to about two percent. On the following day, 25th October 1929, the improvement of the Dow Jones continued. The Dow thus increased by one percent to a value of 301.22. Sadly, after a short period of trading, on Saturday 26th, the Dow Jones reduced again to 298.97: a drop of one percent.
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The Great Depression’s Black Monday
On preceding days, the Dow Jones continued to fall. Black Monday, for instance, showed a decline of thirteen percent in the Dow Jones value. Conversely, Black Tuesday had a decrease of twelve percent. Most stock market investors thus noted the decline in Dow Jones value and panicked. Consequently, they sold over sixteen million shares to counter any potential losses. The stock market thus created an asset bubble that further led to a massive decline in investment capital.
The Associated Decrease in Purchasing Power
Another factor that pushed the great depression was the decrease in purchasing power. After World War 1, most US citizens could not afford to buy products in their market. Consequently, the nation could not find enough markets for its industrial products (Benamake, 32). Also, most warehouses had stocks of goods could not sell and which thus lost their value. Consequently, most business people made losses that affected their ability to make more investments in the economy.
The Great Depression is the world’s worst economic decline. It resulted from the decline of the stock market and the purchasing power of US residents. During Black Thursday and Black Monday, stock market investors bought and stocked shares. However, on Black Tuesday, with the declining Dow Jones index, the investors sold their shares at a loss thus affecting the market’s stability. Conversely, after World War 1, a majority of civilians had low purchasing power, and thus they could not buy industrial products or services in their localities. Consequently, the industries continued to make extensive losses and thus they could not sustain their operations.
Amadeo, Kimberly. Stock Market corrections Versus Crashes, theBalance, 24 January 2019.
Benamake, S, Ben. Essays on the Great Depression. Princeton University Press, 2009.
Kersten, Andrew E., and Jerald Podair. “Black Thursday Remembered: Race, Politics, and
Campus Unrest in Northeast Wisconsin during the Late 1960S”. The Journal of American History, vol 96, no. 1, 2009, p. 166.