Stock Market Crashes

Information concerning the stock market fills American daily newspapers and television reports. With so many Americans belonging to pension plans and other long-term investment programs, stock market shifts touch more people now than ever before. When the stock market is on the rise, everyone views it is a positive signal; investments are increasing in value and a bullish market must mean the economy is good. But what are the repercussions when the stock market goes sour? What happens to American society and culture when the stock market falters or even crashes? In order to evaluate the full social and cultural implications of market crashes, an understanding of the 1929 crash and subsequent Great Depression is necessary. For it was the 1929 crash that has left a permanent mark on American society. That crash led to important policy changes and basically defined the terminology and standards by which the United States would judge future market shifts.

The 1920s had been very good economic times for most Americans. By 1929, production and employment were high, wages were increasing, and prices were stable; there were more middle-class Americans than ever before. American capitalism was in a lively phase and business was good. But while most of the American public did not understand the nuances of the stock market, they did understand there was a lot of speculation and many "get-rich-quick" schemes. In fact, rich and well-connected investors were buying stocks with little or no money down. And there was a feeling throughout the nation that these speculative designs were immoral and might soon lead to severe economic problems.

Still, by the summer of 1929, the stock market boom was a dominant topic of conversation. The bull market not only dominated the news, it also dominated the culture. At any posh party was an investment broker willing to tell his rich friends what to do. Everybody seemed to be a stock market expert and many regular investors were looking to make a quick fortune. Economist John Kenneth Galbraith wrote of the diversity of people playing the stocks: "The rich man's chauffeur drove with his ears laid back to catch the news of an impending move in Bethlehem Steel; he held fifty shares himself … The window cleaner at the broker's office paused to watch the ticker … [I was told of] a broker's valet who made nearly a quarter of a million in the market, of a trained nurse who cleaned up thirty-thousand following the tips given her by grateful patients; and of a Wyoming cattleman, thirty miles from the nearest railroad, who bought or sold a thousand shares a day."

Then came the famous Stock Market Crash. At first, it seemed like this might be just another downturn. Most assumed the market would just right itself as it had done on earlier occasions. On October 24, 1929, the day now called "Black Thursday," however, thirteen million shares were traded and many of America's key businesses, including RCA and Westinghouse, lost nearly half of their value. It is a day in which millions lost all of their money, savings, and hope. By 11:00 a.m. there was a wild scramble to sell, but few buyers. Prices continued to drop as crowds began to form around brokerage houses throughout cities all over the nation. That day, suicides had already begun as 11 well-known speculators killed themselves. There was a last-ditch effort by some key bankers to prop up the market but that only worked for several days. Then came October 29, a day in which over 16 million shares were dumped. The holes which the bankers had closed opened wide. One precocious messenger boy at the Stock Exchange decided to bid a dollar for a block of stocks and he actually got them! No bankers were around to bale the market out, for they were all broke too.

The stock market never righted itself and for a variety of reasons, a severe depression ensued. By 1932 unemployment had reached 25 percent—it had been 3 percent in 1929. The Gross National Product (GNP) fell to 67 percent of its 1929 level. Farm prices fell 60 percent from 1929 to 1932, and between 1930 and 1933 more than 5,500 banks closed. In addition, the suicide rate climbed 30 percent between 1929 and 1932. This Great Depression lasted from 1929 to 1941, and ended only when the United States began to prepare for World War II.

The Great Depression had a lasting effect on several generations of Americans. Even when World War II ended, many assumed the depression would resume. The conservative culture of the 1950s, marked by its lack of dissent and need for social acceptance, can be traced back to that 1929 depression. By 1950, many American families feared another economic crash and remained uncomfortable with economic expansion, credit, and cheap loans. It is accurate to say that the generation of Americans who lived through the 1929 crash and the subsequent depression never forgot it. And it has been those Americans who have continued to make the crash and Great Depression part of American culture and lore.

Evidence shows that the American people and its government, from 1945 to about 1973, were indeed influenced by the depression in several ways. First was the belief that both the federal budget and family budgets should be balanced. On the federal level, the budget deficit did not begin in earnest until 1980. On the personal level, families only purchased major household items when they could pay cash. There was little or no credit for most Americans, as debt was considered a poor judgement at best, and even immoral to some. Second, people also saved more money in the post-depression years. Savings reached a peak during the 1950s as the American public still worried about economic downturns. The belief in society was that if families stayed out of debt and saved their money, they could survive another serious economic downturn.

Personal economic paradigms, however, began to change in the United States—along with everything else—during the 1960s. First, the federal government began to spend more than it took in. This started during the Vietnam War and although the deficit never reached 1980 levels, the mere fact deficits existed provided a startling change in economic policy. Second, as the economy boomed during the 1960s, more and more consumer spending was needed to keep the economy vigorous. Because of this, more credit cards and cheap loans were issued and people were actually encouraged to spend more than they earned. Business leaders argued that spending was good for the economy while too much savings were counterproductive—saving too much money would slow economic growth and cost American jobs. Third, going in debt did not seem immoral to the new generation of Americans who did not remember the depression. The youth of the 1960s and 1970s only heard stories about the Great Depression but had not faced the economic challenges of their parents and grandparents. These new consumers wanted to purchase goods and did not want to wait until they had the cash. Consumer credit and personal debt began to soar.

Clearly, since 1929 the effects of stock market dips have changed with generational perceptions. Market downturns in the late 1940s and early 1950s were met by citizens who lived through the depression. Their survival tactics during these periods included increased savings, earning extra income, and in rural areas, growing and selling their own food and produce. Those were all lessons learned from earlier times; the key during an economic downturn was not to borrow or increase your debt.

The new generation of consumers that came of age in the early 1970s, however, viewed the economy in a much different way. When the market dipped in the 1970s, people actually spent more, went into debt, did not save, and assumed they would make up the difference when the economy rebounded. To these Baby Boomers coming of age, the market would always right itself and debt was not an immoral thing.

There have been crashes since 1929, and each time the stock market falls, the 1929 terminology permeates newspapers and other media outlets. But the crashes that have occurred since 1929 have not had the same economic, social, or cultural effects because the salience of the Great Crash has disappeared. In 1987 there was a stock market crash reminiscent to the 1929 fall. Several brokerage houses collapsed and thousands of investors lost money. The Dow Jones industrial stocks fell 22.6 percent. This time, however, things did right themselves relatively quickly. Fearing the economic repercussions of the 1987 crash, the Federal Reserve Board, the White House, and Congress acted swiftly. Passing legislation to right the economy was not considered in 1929 because politicians believed it more prudent not to tinker with the free market system. A major result of the 1929 crash was that the government began to take an active role in times of economic downturn by enacting fiscal and monetary policy changes.

In 1998, the stock market again fell precipitously. Investment portfolios declined but it seemed to cause little panic and few economic worries. Again, the federal government and Federal Reserve Board offered policy alterations and the market recovered in a short period of time. Those most adversely effected by the 1998 crash were small nations with strong economic ties to the United States. The American economy, with fiscal and monetary policy changes, is able to weather market fluctuations. But many smaller nations are hurt when the American economy goes into a tailspin, even if for a short period of time.

With fewer and fewer people who remember the 1929 crash still living on the eve of the twenty first century, fears about stock market crashes have been blunted. In 1929, many American economic and business structures were still weak and could not handle the crash. But because of the 1929 crash, American banks, businesses, and policy makers are prepared for problems and make the necessary adjustments. In every crash since 1929, the market has rebounded and subsequent recessions or depressions have been avoided. But because the 1929 crash had such dire economic consequences, it remains an important social and cultural event—even if its economic significance has lost salience. Drops in the current market are always compared with 1929 declines. Unemployment rates, productivity figures, and other economic data is generally contrasted with 1929 figures. And post-crash depression stories are still part of American popular culture. There are many tales about those who lived through the depression and in later years refused to put their money in banks, opting instead to place all their savings in mattresses or freezers. While more enlightened economic policies have made it possible to easily survive a stock market crash, the 1929 calamity and its aftermath will forever be the standard against which Americans measure economic and social problems.

—David E. Woodard