Birth of the Great Depression: Causes of the 1929 Stock Market Crash

2812 Words Mar 16th, 2014 12 Pages
Loren Pilon
Paventi
SUNY US History
March 11th, 2013
Birth of the Great Depression: Causes of the Stock Market Crash of 1929 It was a time of great economic growth in the United States after World War I. The economy was growing rapidly, fueled by industrialization and the rapid development of new technologies such as the automobile, electricity, telephone, aviation and radio. Many people and businesses began investing in the stock market at this time. The stock market is the organized trading of stocks. The owning of stocks gave people partial ownership of a company while infusing cash into the company. In return, people earned money on their investment as the company grew. The stock market provides financial support required by
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Harold Bierman, Jr. explains in his article, “The Reasons the Stocks Crashed in 1929”, the prosperity of the stock market in the twenties. “From 1922 to 1929, stocks rose in value by 218.7%. This is equivalent to an 18% annual growth rate in value for the seven years” (Bierman). When the value of stocks went up, everyone wanted to invest. At first it was just wealthy investors purchasing stocks, but when middle and lower class Americans saw them becoming rich off these stocks, they began to invest. With more people apt to invest, the market began to grow. The market was not able to handle this rapid growth and large number of investors. That’s what made the crash of the market so devastating. There were so many investors, ones who had invested money they did not have, that were now drowning in debt. There was also a new financial arrangement known as credit. Credit is the same as buying on margin, which includes an initial down payment made to the broker for the asset being purchased, then the rest is paid off later. Buying with credit allowed people to do two things: buy high dollar luxury items, such as a car or a house because the bank would lend you money to do so. Secondly, some stores kept records where you could purchase something and make weekly payments to the store you bought it from. With all these policies giving people new extravagances and the success of the market, the stock market seemed invincible. The crash of the market was not

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