The 1929 stock market crash took place between the October 24(the black thursday) and on October 29, 1929. It caused an unprecedented financial and then banking crisis, which precipitated the United States, then quickly the main world powers, in the Great Depression of the 1930s. The 1929 crisis was the most dramatic crisis world economy of the twentieth century, the tragic consequences of which will be felt for a decade and were at the origin of the Second World War.
The 1929 crisis: an inevitable catastrophe
The crisis was the most serious of those experienced by the capitalist economy. It broke loose in a completely unexpected way, amid the euphoria over the speed of reconstruction after World War I. Ten years after 1918, world production and international trade reached unprecedented figures. Except in the USSR, the entire post-war economy developed on the basis of economic liberalism (a general return to the gold standard), which had made Europe prosperous in the 19th century. The extent of technical progress and the success of rationalization methods further helped to increase confidence.
During the 1920s, the United States experienced a high increase which allows industrial production to grow by around 50%. But at the same time, prices on the New York Stock Exchange are swelling by more than 300% under the insatiable appetite of speculators who do not take economic reality into account. Moreover, neither productivity nor wages reflect this euphoria. The ingredients for the disaster to come are quickly assembled: investors no longer seek to collect the dividends levied on the profits, fruits of the reality of growth: they massively buy securities on credit with the sole objective of reselling them as quickly as possible by stuffing themselves with the passage of the biggest capital gain possible. The fundamentals of the stock market are simply trampled, the crash is inevitable.
The causes of the stock market crash of 1929
From 1928, the Charles Merrill cabinet (which later became Merrill Lynch) alerts the markets by recommending that you no longer buy stocks on credit. A first warning which is not really followed by effects. More seriously, at the beginning of 1929, the country's economy began to run out of steam, with notorious difficulties in the automotive sector. More generally, industrial production fell by around 7% during the first quarters of the year. The reason is simple: all capital has been swallowed up in stock market speculation and the so-called real economy is simply no longer financed ...
A flagrant sign of the relentless blindness of financial operators, the share price is still climbing more than 100% during the same period! Lack of cash, or slow return to reality? Still, the stock market reaches a relative stagnation from September after a frenzied force-feeding of several months, then a gradual decline from the beginning of October.
The large operators, who no longer see any prospects for immediate growth, are chaining profit taking, in volumes which become more and more worrying between October 18 and 23. Small problem: without the promise of an indecent capital gain in the very short term, no one wants to buy back totally overpriced shares ... Nothing can prevent the worst from happening.
Market collapse: Thursday, October 24 (Black Thursday)
The next day, Thursday 24 October 1929, is the first day of total panic: nobody wants to buy any more stock, and all the big operators are in a selling position: it's the total collapse of prices, -22% at noon, a sad record comes from settle down. Rumors, later denied, speak of massive suicides of traders. Still, the panic is spreading and the banks are forced to buy back shares massively to raise prices. They manage to limit the breakage, the drop at the end of the day being only 2%, in a stratospheric trade volume (13 million against a usual average of 2.5 million). A start before the final collapse, the courses even remain stable for the following two days.
But this is only a reprieve: the "investors", or rather one should say the followers of Russian roulette, borrowed on credit to speculate: they are forced to sell to limit their losses in view of the deterioration of the short-term outlook. Monday, October 28, is a new collapse of prices: this time the banks do not counterbalance. It is a record plunge of the Dow Jones which loses 13% in a single day, and another 12% the next day.
With the drift of the following weeks it will be, modestly, the equivalent of 10 times the US federal budget that will go up in smoke, or billions of dollars. By July 1932, the index of American industrial production (100 in 1929) had fallen to 48.7; the drama of agriculture manifested itself spectacularly in the collapse of the price of cotton (1929: 17.65 cents; 1933: 6 cents) and wheat (1920: 98 cents; 1933: 40 cents); the banking crisis peaked in early 1933, when all banks closed after the proclamation of a general moratorium. From the United States, the crisis spread rapidly to Latin America (1929/30), to Austria (bankruptcy of Credit Anstalt, May 11, 1931), to Germany (hence the American capital had been abruptly repatriated), to Great Britain and the Commonwealth, finally, later but more permanently, to France (1932).
From financial crisis to economic crisis
After the financial crisis, make way for economic crisis, which hits hard on companies that would have preferred that the credits allocated in previous years be devoted to the investments necessary for their own development. Household consumption plummets. Banks are forced to close the floodgates of credit, which further weakens businesses, many of which go bankrupt. It is a vicious circle: no longer reimbursed, the weakest banks in turn go bankrupt, and small savers then try to save their savings by withdrawing their assets from the banks still alive. A banking crisis fires.
The general crisis, the sum of financial, economic and banking setbacks, then leads to an explosion in unemployment: social crisis completes the grim picture. But these will not be the only damages of this incredible programmed self-destruction: the crisis of 1929 will also be largely responsible for the withdrawal of states in themselves (measures protectionists) after the contamination of the entire planet, as well as the unexpected strengthening of totalitarian regimes.
Thus, between 1929 and 1933, world trade fell by two-thirds. Great Britain is forced to devalue the pound sterling in 1931, which causes a chain reaction in all the major European states. Unemployment is exploding. Following the English example, Roosevelt's United States devalued the dollar (April 1933), and the government, to fight unemployment and promote business recovery, inaugurated the New Deal, which enshrined the intervention of the State in a country which had until then been the fortress of liberalism.
The consequences of the crash of 1929 in France and Germany
In France, where the government refused to devalue the Poincaré franc (despite the advice of certain experts such as Paul Reynaud), the English and American devaluations accentuated the disparity of French prices with foreign prices. Also, while by the end of 1933 recovery was taking shape in most countries, the French crisis continued to worsen in 1934/35 and the deflationary experience of the Laval cabinet ended in failure. The electoral victory of the Popular Front (May 1936) was to mark the French rallying to the interventionist evolution which henceforth involved all states. The franc was devalued (October 1936), but France would, in fact, continue to suffer from the crisis until the war of 1939.
The consequences had been even more serious in Germany, where millions of unemployed and ruined petty bourgeoisie brought Hitler to power (Jan. 1933); the National Socialist regime remedied the crisis by a strictly interventionist and autarchic policy and by the implementation of a major program of public works (highways) and armaments, which quickly reduced unemployment. Similar measures were taken by fascist Italy. In all the countries of the liberal world, confidence was henceforth lost, the economic barriers erected with more suspicion than ever, and, to forget their misery, the peoples trusted again to the drugs of bellicose nationalism. The crisis was not really overcome and its consequences were to culminate in World War II.
- Le Krach de 1929, by Maury Klein. Les Belles Lettres (1929).
- The Economic Crisis of 1929 by John Kenneth Galbraith. Payot, 1989.
- Pierre-Cyrille Hautcoeur's 1929 crisis. Discovery, 2009