How the Wall Street stock market crash led to the Great Depression

In the first half of the 20th century, the world was grappling with wars, as countries faced mounting challenges from slowing economies, high unemployment, and recessions. Much of the world was still under colonial rule and had not yet achieved independence.
On October 29, 1929, Black Tuesday struck Wall Street as investors worldwide traded over one and a half million shares on the New York Stock Exchange.
Thousands of investors lost everything. The Great Depression soon followed, bringing the global economy to the brink of collapse. Black Tuesday was preceded by Black Thursday on October 24, when crowds gathered on Wall Street to witness the crash.
The era of wealth and excess known as the ‘Roaring Twenties’ came crashing down, a period marked by increasing urbanisation, especially in Europe and America, as people flocked to cities in search of prosperity.

Gathering of crowd on Wall Street after market crash (Image: Wikimedia Commons)

Scholars argue that Federal Reserve Bank decisions reducing the money supply significantly shrank economic output. Despite risky speculation, many thought the stock market would keep rising.
On March 25, 1929, after the Federal Reserve warned against excessive speculation, a minor crash prompted investors to sell stocks quickly, exposing weaknesses in the market.
Two days later, Charles E Mitchell, a leading banker, pledged $25 million in credit to stabilise it, temporarily calming the situation. However, economic signs worsened, with declines in steel production, construction, and automobile sales, alongside rising consumer debt.
Businesses at the time fell sharply. This was heightened by overproduction and under consumption. Soon the businesses came to a loss and that resulted in lay-offs and shortages of money.
Although the market briefly stabilised, stocks surged from June to early September, and the Dow (Dow Jones, or simply the Dow, is a stock market index of 30 prominent companies listed on stock exchanges in the United States) reached a record high on September 3.
Notable economist Irving Fisher even stated stock prices had reached a stable high.
But, after a September prediction of a crash by financial analyst Roger Babson, investors became concerned.
By October, a major crash began, with declines intensifying, especially after the September 20 arrest of British investor Clarence Hatry for fraud, further shaking confidence in the market.
The Great Depression plunged millions of American workers into hardship and poverty. With no social safety net, the unemployed were left to fend for themselves, and joblessness skyrocketed from 1.6 million in 1929 to 14 million by 1933, reaching a staggering 25% of the workforce.
Many, like the 6,000 men selling apples on New York’s streets, desperately sought any form of income, while cities heavily reliant on industry, like Cleveland, saw over half of their male workforce unemployed.
Those fortunate enough to have jobs faced falling wages and longer hours, while government employees in some cities went unpaid as municipal budgets collapsed.
Hunger and malnutrition took a deadly toll, with deaths directly tied to starvation reported in New York hospitals, and a third of the city’s children were found malnourished.
Homelessness soared, as over 250,000 families lost their homes, many ending up in makeshift ‘Hoovervilles’ on the outskirts of cities, so named to criticise President Hoover’s inadequate response.
A wave of vagrancy ensued, with up to two million men becoming ‘hobos’, some deliberately getting arrested to secure a warm jail cell. The absence of unemployment benefits forced the destitute to rely on local charities, resulting in long breadlines and overwhelmed state relief efforts.
Eventually, the federal government provided emergency funding for public works, yet frustrations boiled over into riots, strikes, and protests across American cities, demanding more action against starvation wages and bleak conditions.
In 1932, World War I veterans known as the ‘Bonus Army’ gathered in Washington, DC, seeking early payment of their war bonuses, which were not due until 1945. Over 15,000 veterans set up camp, only to be dispersed by the armed forces, resulting in several deaths and injuries.
Meanwhile, US farmers faced economic hardship due to overproduction, reduced crop demand, and tariffs that blocked export opportunities. With crop prices plunging — wheat fell from 103 cents per bushel in 1929 to 38 cents in 1933 — many farmers went into debt, and roughly 750,000 lost their land.
The Dust Bowl worsened their plight, as drought and soil erosion devastated the Midwest, forcing many to migrate west in search of work, often to disappointing conditions.
The federal government’s response under President Hoover included limited aid programs.
The Reconstruction Finance Corporation provided loans to banks and businesses, and the Federal Farm Board bought surplus food.
Public works like the Hoover Dam created jobs and stabilised water supplies, while the Hawley-Smoot Act imposed steep tariffs to protect US industries but contributed to declining international trade.
Many, however, found these measures inadequate, and frustration over poverty and unemployment continued to grow.