In 1920 why did the stock market crash

Unfortunately for many potential investors, these people did not have enough money to afford shares of stock. Because of their limited capital, many investors purchased stock on credit. As long as the stock market continued to increase in value, these investors did stand to make a profit. Unfortunately for them, beginning in September , the stock market began to decline in value as larger investors realized that the stocks were inflated in price. On October 23, the stock market lost thirty-one points, approximately seven percent of its value.

Conditions worsened the next day. By mid-November, the twenty-five leading industrial stocks had dropped to points, less than one-half of their value two months earlier. The market continued to decline in value, leaving investors who had purchased stock on credit financially destroyed.

Faced with financial ruin, some investors took their own lives, believing that they would never be able to escape from their debts. This quick and precipitous decline in stocks' value in October became known as the Stock Market Crash of Stock Market Crash.

What made the stock market crash? Here's a brief summary. Capital is the tools needed to produce things of value out of raw materials. Buildings and machines are common examples of capital.

A factory is a building with machines for making valued goods. Throughout the twentieth century, most of the capital in the United States was represented by stocks. A corporation owned capital. Ownership of the corporation in turn took the form of shares of stock.

Each share of stock represented a proportionate share of the corporation. The stocks were bought and sold on stock exchanges, of which the most important was the New York Stock Exchange located on Wall Street in Manhattan.

Unable to repay these debts, the Allies looked to reparations from Germany and Austria to help. The economies of those countries, however, were struggling badly, and they could not pay their reparations, despite the loans that the U.

The U. When other countries began to default on this second wave of private bank loans, still more strain was placed on U. Poor income distribution among Americans compounded the problem. In the s, this was not the case. Eighty percent of American families had virtually no savings, and only one-half to 1 percent of Americans controlled over a third of the wealth.

This scenario meant that there were no new buyers coming into the marketplace, and nowhere for sellers to unload their stock as the speculation came to a close. In addition, the vast majority of Americans with limited savings lost their accounts as local banks closed, and likewise lost their jobs as investment in business and industry came to a screeching halt.

Finally, one of the most important factors in the crash was the contagion effect of panic. For much of the s, the public felt confident that prosperity would continue forever, and therefore, in a self-fulfilling cycle, the market continued to grow.

But once the panic began, it spread quickly and with the same cyclical results; people were worried that the market was going down, they sold their stock, and the market continued to drop. Historically, markets cycled up and down, and periods of growth were often followed by downturns that corrected themselves. But this time, there was no market correction; rather, the abrupt shock of the crash was followed by an even more devastating depression.

Investors, along with the general public, withdrew their money from banks by the thousands, fearing the banks would go under. The more people pulled out their money in bank runs , the closer the banks came to insolvency. As the financial markets collapsed, hurting the banks that had gambled with their holdings, people began to fear that the money they had in the bank would be lost.

This began bank runs across the country, a period of still more panic, where people pulled their money out of banks to keep it hidden at home. The contagion effect of the crash grew quickly. With investors losing billions of dollars, they invested very little in new or expanded businesses. After the crash, both were hit hard. In November , fewer cars were built than in any other month since November Even before the crash, widespread saturation of the market meant that few Americans bought them, leading to a slowdown.

Afterward, very few could afford them. By , Stutz, Locomobile, Durant, Franklin, Deusenberg, and Pierce-Arrow automobiles, all luxury models, were largely unavailable; production had ground to a halt. They would not be made again until In construction, the drop-off was even more dramatic.

It would be another thirty years before a new hotel or theater was built in New York City. The Empire State Building itself stood half empty for years after being completed in The damage to major industries led to, and reflected, limited purchasing by both consumers and businesses. Even those Americans who continued to make a modest income during the Great Depression lost the drive for conspicuous consumption that they exhibited in the s.

People with less money to buy goods could not help businesses grow; in turn, businesses with no market for their products could not hire workers or purchase raw materials. Employers began to lay off workers. Unemployment tripled, from 1. By mid, the slide into economic chaos had begun but was nowhere near complete.

For most Americans, the crash affected daily life in myriad ways. In the immediate aftermath, there was a run on the banks, where citizens took their money out, if they could get it, and hid their savings under mattresses, in bookshelves, or anywhere else they felt was safe.

Some went so far as to exchange their dollars for gold and ship it out of the country. A number of banks failed outright, and others, in their attempts to stay solvent, called in loans that people could not afford to repay. Working-class Americans saw their wages drop: Even Henry Ford, the champion of a high minimum wage, began lowering wages by as much as a dollar a day.

Southern cotton planters paid workers only twenty cents for every one hundred pounds of cotton picked, meaning that the strongest picker might earn sixty cents for a fourteen-hour day of work. Cities struggled to collect property taxes and subsequently laid off teachers and police. The new hardships that people faced were not always immediately apparent; many communities felt the changes but could not necessarily look out their windows and see anything different.

They might be found keeping warm by a trashcan bonfire or picking through garbage at dawn, but mostly, they stayed out of public view. As the effects of the crash continued, however, the results became more evident. Those living in cities grew accustomed to seeing long breadlines of unemployed men waiting for a meal. Companies fired workers and tore down employee housing to avoid paying property taxes. The landscape of the country had changed. As the Great Depression set in, thousands of unemployed men lined up in cities around the country, waiting for a free meal or a hot cup of coffee.

The hardships of the Great Depression threw family life into disarray. Both marriage and birth rates declined in the decade after the crash. The most vulnerable members of society—children, women, minorities, and the working class—struggled the most. Parents often sent children out to beg for food at restaurants and stores to save themselves from the disgrace of begging.

Many children dropped out of school, and even fewer went to college. Childhood, as it had existed in the prosperous twenties, was over. And yet, for many children living in rural areas where the affluence of the previous decade was not fully developed, the Depression was not viewed as a great challenge. School continued. Play was simple and enjoyed. Families adapted by growing more in gardens, canning, and preserving, wasting little food if any.

Home-sewn clothing became the norm as the decade progressed, as did creative methods of shoe repair with cardboard soles. By one estimate, as many as , children moved about the country as vagrants due to familial disintegration. Some wives and mothers sought employment to make ends meet, an undertaking that was often met with strong resistance from husbands and potential employers.

Many men derided and criticized women who worked, feeling that jobs should go to unemployed men. Some campaigned to keep companies from hiring married women, and an increasing number of school districts expanded the long-held practice of banning the hiring of married female teachers. Despite the pushback, women entered the workforce in increasing numbers, from ten million at the start of the Depression to nearly thirteen million by the end of the s.

This increase took place in spite of the twenty-six states that passed a variety of laws to prohibit the employment of married women. Others took jobs as maids and housecleaners, working for those fortunate few who had maintained their wealth.

Unsurprisingly, African American men and women experienced unemployment, and the grinding poverty that followed, at double and triple the rates of their white counterparts. By , unemployment among African Americans reached near 50 percent. In rural areas, where large numbers of African Americans continued to live despite the Great Migration of —, depression-era life represented an intensified version of the poverty that they traditionally experienced.

Subsistence farming allowed many African Americans who lost either their land or jobs working for white landholders to survive, but their hardships increased.