An Era of Great Hardship (College Board AP® US History): Study Guide

Timeline & Summary

The economic boom of the 1920s came to an end on October 29, 1929. This was known as Black Tuesday when the US stock market crashed. This event marked the beginning of the Great Depression, the most severe downturn in US history and the world. 

Black Tuesday & the Result of the Stock Market Crash

Stock market

• The stock market is where investors buy and sell shares (pieces of ownership) in companies

• In the 1920s, stock prices rose as many people believed the economy would continue to grow

• On October 29, 1929, the US stock market crashed

  • Billions of dollars of wealth were lost by investors and businesses

Causes of the stock market crash

Over-speculation of stocks

• Many investors gambled on the idea that stock prices would keep rising

  • They bought stocks not based on the real value of companies, but on the assumption that prices would continue to increase

Inflated stock prices

• The high prices of stocks didn’t match the performance or worth of the companies they represented

Buying on the margin 

• An unregulated stock market allowed investors to borrow money from banks or brokers to buy stocks

  • Investors only needed to repay a small percentage upfront

• However, when stock prices fell, investors were unable to repay the debt

  • They could not sell their stocks to repay the loans

  • This led to widespread financial ruin

Economic weaknesses

• The stock market crash coincided with deeper problems, including:

  • overproduction

    • farmers and factories produced more goods than people could afford to buy, causing prices to drop

  • high tariffs

    • trade policies like the Smoot-Hawley Tariff in 1930 made imported goods expensive, hurting international trade

  • high level of consumer debt

    • many Americans borrowed heavily to buy homes, cars, and household goods, leaving them unable to repay loans

Results of the stock market crash

• The stock market crash had many implications for society and the economy

Rise in unemployment

• 25% of the US workforce, nearly 13 million workers, lost their jobs as businesses closed

• For those still employed, wages dropped by nearly 50%, forcing many into poverty

Bank failures and foreclosures

• Banks lent out money to stock investors and businesses that could not be repaid when the market crashed

• This caused thousands of banks to collapse

• Millions of Americans lost their life savings 

Collapse of consumer confidence

• Americans stopped spending and investing out of fear

• This worsened the economic downturn

• Businesses could not survive without consumers

• Leading to more unemployment and closures

Widespread homelessness

• People lost their jobs and savings and could no longer pay for housing

• Many were forced to live in makeshift shantytowns called Hoovervilles

• Hoovervilles were named after President Herbert Hoover and his laissez-faire economic policies as he was blamed for failing to address the crisis effectively

• These camps, including handmade shelters, grew across the nation as people lost their homes, mainly in urban centers

Source: https://commons.wikimedia.org/wiki/File:Hooverville_on_the_Seattle_tideflats,_1933_(50495168952).jpg (opens in a new tab)