What Caused The 1929 Crash Of Stock Market Prices

The 1929 crash of stock market prices was unprecedented in modern times. Nothing had prepared investors, who had been living high on the hog throughout the Roaring Twenties, for the disaster that hit them at the end of October 1929. Crash of stock market prices can be expected from time to time as markets correct themselves following false highs but what happened that October began an economic downturn that lasted for years.

Starting on the Thursday October 24th, 1929 crash of stock market confidence became even worse on the following Monday and Tuesday. Starting with those three days of trading the market fell for a full month and began the Great Depression which took a little over 25 years for the United States to recover from. In fact it was November of 1954 before share prices reached the level they were at on that first day of the crash.

So what caused such an economic disaster? There are many different views on the cause as you would imagine but the general consensus of opinion is that there was a misplaced belief that high share prices could be sustained indefinitely. The Bull market which had lasted throughout the 1920s had even led one eminent economist, Irving Fisher, to state that "Stock prices have reached what looks like a permanently high plateau."

It seemed at the time that everyone in the nation was obsessed with the stock market and share dealing became the "in thing" to do. Ordinary men and women who knew very little of the ways that stock markets operated began to buy stock to join in this speculative boom. Many people even borrowed money to allow them to buy even greater amounts in the belief that the good times were bound to continue. They ignored all the warnings and speculation drove prices ever upwards regardless of common sense.

Naturally any boom based on speculation is doomed once people sense that the market is overheating. The market reached its peak in early September of 29 and prices began falling sharply losing 17% of their value over the next month. Even then prices rallied fueled by hope more than reason, but as smarter investors decided to take their profits the final collapse began. The result of which was the 1929 crash of stock market confidence around the world and the start of the Great Depression.