What is Black Tuesday?
As a result of the large trading volume that occurred on October 29, 1929, the stock market went through a significant fall. The Dow Jones Industrial Average (DJIA) was heavily impacted during this period. It was one of the greatest one-day collapses in the stock market’s history, with the DJIA falling by 12%. Over sixteen million shares were traded during the panic sell-off, which ended the Roaring Twenties and marked the beginning of the Great Depression in the world’s economy.
Understanding Black Tuesday
Black Tuesday signaled the end of a period of post-World War I economic expansion and the beginning of the Great Depression, which lasted until the beginning of World War II.
The United States emerged from World War I as a significant economic power but focused on developing its industry rather than international cooperation. High tariffs were imposed on many imported products to protect nascent industries such as cars and steel. Agricultural prices fell as European production returned after being shut down during the war, and tariffs were imposed to protect American farmers. However, their incomes and the value of their farms fell, and migration to the industrialized cities accelerated.
The boom years of the so-called Roaring Twenties were fueled by optimism that the world had fought the war to end all wars and that good times had arrived permanently. Between 1921 and the crash in 1929, stock prices increased nearly ten times as ordinary individuals bought stock, often for the first time. This was fueled by lending by brokers that,t at the time, reached two-thirds of the stock price, with the purchased stock serving as collateral. Income inequality also rose. It is estimated that the top 1% of America’s population held 19.6% of its wealth.
The 1929 Crash
By the middle of 1929, the economy was showing signs of slowing, led by declines in purchases of houses and cars as consumers were burdened with debt. Steel production weakened.
Protectionism
A few years earlier, European production of agricultural goods began to recover following World War I, which meant American farmers would lose that market to sell their goods. As a result, the U.S. Congress passed a series of bills designed to help American farmers by increasing tariffs (or prices) on imports, including agricultural products. At the same time, news from Europe indicated an excellent harvest, which meant an increased supply and overproduction, pushing commodity prices lower and rattling the markets.
The U.S. Congress stepped in again and passed the Smoot-Hawley Tariff Act, which increased tariffs on agricultural goods and goods in other sectors. Many other countries have also adopted protectionist policies. The impact on global trade was devastating. International trade had decreased by 66% from 1929 to 1934.
The Fed
In August, the Federal Reserve Bank allowed its New York regional board to raise its discount rate.
Federal Reserve History. “Stock Market Crash of 1929.” Accessed January 9, 2021. The monetary policy move caused central banks around the world to follow suit. The London stock market dropped sharply on September 20 when top investor Clarence Hatry was jailed for fraud. Markets gyrated for the next month.
The Crash
All of these factors eventually caused the stock market to crash. On Black Thursday, October 24, the market fell 11% at the open. Heads of significant American banks devised a plan to support the market by buying large chunks of stock, and the market closed down by just 6 points. But panic and margin calls had spread by Black Monday, the 28th. The market fell 13% and a further 12% on Black Tuesday in record-setting volume. Efforts led by financiers and industrialists to support prices could not stem the selling tide. The market lost $30 billion in value in those two days.
The market hit a 20th-century low of 41.22 on July 8, 1932, which was a fall of 89% from its high of 381.17 on September 3, 1929.1Economic growth, as measured by Gross Domestic Product (GDP), shrank by more than 36% from 1929 to 1933. The unemployment rate in the United States surged to over 25% as workers were laid off after they had been hired during the boom years.6
Only after President Franklin Delano Roosevelt was elected did the economy show signs of taking a turn for the better. Among his achievements is stopping the Smoot-Hawley tariffs and establishing the Reciprocal Trade Agreement Act in 1934. Still, a new high wasn’t reached until November 23, 1954.
Conclusion
- Black Tuesday is a steep drop in the Dow Jones Industrial Average (DJIA) value on October 29, 1929.
- Black Tuesday marked the beginning of the Great Depression, which lasted until World War II.
- The causes of Black Tuesday included too much debt used to buy stocks, global protectionist policies, and slowing economic growth.
- Black Tuesday had far-reaching consequences for America’s economic system and trade policy.
