After the Great War, America was in economic prosperity. Characterized by jazz music, artistic breakthroughs, and cultural booms, many called this era the Roaring Twenties. Under the Dawes Plan, Wall Street invested in Germany to aid them in paying back the European allied powers, boosting Europe’s economy in return. Also, consumer goods, such as the automobile, were rapidly evolving and expanding, infrastructure was improving, and America’s economy quickly moved from wartime to a recovery period.
Although America’s economy was slowly shifting back to its state prior to the war, consumers now depended on credit to purchase products, making credit more important and popular. This led to many businesses being liable to be in danger if consumer confidence in the economy declined. With the stock market prospering as well, many believed that investing large amounts of money at the right time was an efficient way to get rich, so many borrowed money from brokers to purchase larger amounts of stocks at one time, meaning greater potential losses. During this period, while unemployment skyrocketed and production declined, many still kept investing large sums of loaned money, leaving stocks to seem to be greater than their actual value. With confidence plummeting and paranoia rising, on October 29, 1929, 16 million shares were traded. This led to the loss of billions of dollars and the collapse of the stock market, eventually being the catalyst of a chain of events leading to the Great Depression.
Black Tuesday destroyed banks all across America. With many taking out loans to invest, the crash of the stock market left banks with large loans that could not be paid back by investors. Consumers lost confidence in banks and the economy, and many started saving money and stopped investing, leading to business and industrial production plummeting, directly leading to unemployment rates shooting up even higher.
Furthermore, farmers couldn’t afford to harvest crops, and the Dust Bowl led to severe droughts and the devastation of agricultural land. This collapsed the agriculture industry, further strained the economy, and left many to starve.
The combination of all these factors led to the downfall of the US economy. After careful study of all these causes behind the recession, modern countries are now more prepared and on alert for signs of economic recession.
Graph Depicting the effects of Black Tuesday on the Dow Jones