Speculation and the Crash of 1929

Even at the height of 1920s prosperity, the boom rested on shakier ground than it appeared. Farmers, who had over-expanded during World War I to feed Europe, faced falling crop prices and mounting debt for most of the decade, never sharing in the era's consumer boom. Industrial productivity rose faster than wages, meaning a small number of wealthy Americans captured a disproportionate share of the decade's new income -- by 1929, the wealthiest 1 percent of Americans received about a fifth of all income, while many working families had little savings cushion. Consumer debt from installment buying (week 8) meant many households were already financially stretched even before anything went wrong.

The stock market itself became dangerously detached from the real economy through "buying on margin": investors could purchase stock by putting down as little as 10 percent of its price and borrowing the rest, betting that rising prices would let them pay off the loan and pocket the profit. This worked beautifully as long as prices kept rising -- and collapsed catastrophically once they stopped. On October 24, 1929 ("Black Thursday") and especially October 29 ("Black Tuesday"), panicked selling wiped out stock values with terrifying speed; the market ultimately lost roughly 90 percent of its value over the following three years. The crash alone did not cause the Great Depression that followed -- farm distress, income inequality, bank fragility, and international debt problems from the war all fed into it -- but it was the visible, dramatic moment when the decade's hidden weaknesses became impossible to ignore.