What Are the Causes of the 1929 Market Crash?

The 36 percent drop in the stock market between September and December 1929 signaled the start of the Great Depression (Bierman 139). Unprecedented for its time, the crash concluded one of the most prosperous eras in United States history.

Speculation

Investments were made in stocks for the purpose of making quick profits within a year's time, which inflated stock prices to unstable levels. Stock values that were $75 billion in January 1927 increased 33 percent to a value of $100 billion by January 1929.

Margin Buying

Broker loans for margin buying increased from $6.7 billion in January 1929 to $8.4 billion in September 1929. This furthered investors' abilities to make speculative investments in overpriced stocks.

Investment Trusts

The first eight months of 1929 saw $1 billion of these trusts sold, up 150 percent from the $400 million sold in 1928. The success of these funds relied on sharply rising stock prices, causing their demise and the crippling sale of many stocks after the falling stock prices began in September 1929.

Public Utilities

Investment trusts invested heavily in these companies due to high dividends. These increased investments resulted in stock prices that were more than three times their book values.

Overpricing

Inflated stock prices enticed dangerous levels of investments, meaning funds were not used for long-term investments in businesses, infrastructure and education.

References

• "The Causes of the 1929 Stock Market Crash: A Speculative Orgy or a New Era?" Harold Bierman, Jr.; 1998
• "1929 The Year of the Great Crash;" William Klingaman; 1989