Wall Street Crash 1929

Also called: Black Tuesday · Topic: The Making of a Global World · NCERT: Beyond NCERT

Meaning

The Wall Street Crash of 1929 was a sudden, steep fall in share prices on the New York Stock Exchange (on Wall Street, New York). It ran over four trading days, from Black Thursday (24 October) to Black Tuesday (29 October) 1929, and the Dow Jones Industrial Average fell from 305.85 to 230.07 points [1]. It matters because it was the trigger event in the USA for the Great Depression. That slump spread across the world and reached colonial India, from the jute fields of Bengal to the Civil Disobedience movement.

Explanation

Background — why share prices were ready to fall

• Share prices were too high.
• A share is a small piece of ownership in a company. Its price should depend roughly on how much the company earns.
• By 1929, share prices had risen far above what company earnings could justify.

• A market that rises on hope rather than profits can fall very fast once confidence goes.

• The world economy was already weak.

• Agricultural overproduction (farmers growing more than buyers wanted) had made crop prices slump. Each farmer grew more to keep the same income. This made the glut worse, and produce rotted for want of buyers.
• The world ran on US loans. In the first half of 1928, US overseas loans crossed $1 billion. A year later they were one-quarter of that. Countries that depended on American money were already under strain.
• The gold standard (a system where each currency was fixed to a set amount of gold) forced foreign central banks to raise interest rates to correct their trade gaps with the USA. Higher interest rates cut spending and investment in those countries [1].

The crash — the sequence of days

• Thursday, 24 October 1929 — Black Thursday. Panic selling began on the New York Stock Exchange [1].
• Tuesday, 29 October 1929 — Black Tuesday. This was the worst day, the peak of the crash [1].
• Size of the fall: over these four trading days the Dow Jones Industrial Average (an index that tracks the share prices of major US companies) dropped from 305.85 to 230.07 [1]. That is a loss of about one-quarter of its value in under a week.

How the crash turned into the Great Depression

• Banks pulled back.
• US banks cut lending at home and called back loans they had already given.

• Families could not repay. They gave up homes, cars and consumer durables bought on hire purchase (buying on instalments).

• Banks and firms collapsed.

• By 1933, over 4,000 banks had closed.
• Between 1929 and 1932, about 110,000 companies collapsed.

• The banking panics of the early 1930s left less money to lend, which deepened the slump [1].

• The shock went abroad.

• American lenders pulled money back from other countries. Major European banks failed and the British pound sterling collapsed in value.

• Latin American commodity prices (coffee, beef, minerals) fell even harder.

• America shut its doors.

• The USA doubled import duties through the Smoot-Hawley Tariff Act, passed June 1930 [2].
• About two dozen countries raised tariffs within two years, and world trade fell by about 65 per cent between 1929 and 1934 [2].
• According to Britannica, protectionism did not cause the Depression, but it worsened it and blocked recovery [2].

Results — the long shadow, including India

• The Great Depression lasted from c. 1929 till the mid-1930s. A modest US recovery came by 1935, but the damage to society, politics and people's thinking lasted much longer.
• In India:
• Exports and imports fell to about half between 1928 and 1934. Wheat prices fell by 50 per cent.
• In Bengal, raw jute prices crashed by more than 60 per cent. Growers said traders "will pay only Rs 5 a maund" (a maund is an old Indian weight, roughly 37 kg).
• The colonial government refused to cut its revenue demand, even though prices had halved.
• Peasants sold jewellery and gold, so India became an exporter of gold. John Maynard Keynes thought this helped world recovery. NCERT says it helped Britain's recovery but "did little for the Indian peasant".
• Rural anger fed the national movement. NCERT says Gandhi launched Civil Disobedience at the height of the Depression in 1931. The Salt March that began it actually ran from 12 March to 5 April 1930 [3].

Time, place and evidence

• When: 24–29 October 1929, from Black Thursday to Black Tuesday [1]. It started a depression that lasted from c. 1929 to the mid-1930s.
• Where: the New York Stock Exchange on Wall Street, New York, USA. Its effects spread to Europe (bank failures, the fall of sterling), Latin America (commodity prices) and colonial India (Bengal jute, wheat-growing regions).
• Key people and laws:
• John Maynard Keynes, the economist, commented on Indian gold exports helping world recovery.
• The Smoot-Hawley Tariff Act (June 1930) was the US law that raised import duties after the crash [2].

• In India, Gandhi led Civil Disobedience during the Depression years. The Gandhi–Irwin Pact was signed on 5 March 1931 [3].

• How we know:

• Stock market records, above all the Dow Jones Industrial Average figures (305.85 to 230.07) [1].
• US banking and business figures: over 4,000 bank closures by 1933, about 110,000 company failures from 1929 to 1932.
• Trade and price statistics for India: trade halved from 1928 to 1934, wheat down 50 per cent, jute down over 60 per cent.
• Peasants' own words recorded in the NCERT chapter, such as the Bengal jute growers' "Rs 5 a maund" lament.
• The main textbook account is NCERT Class 10, Ch 3 "The Making of a Global World". Britannica gives the crash figures and tariff details [1][2].

Don't confuse with

• Great Depression: the Wall Street Crash was a short event (24–29 October 1929). The Great Depression was the long worldwide slump it triggered, lasting till the mid-1930s. The crash was the spark, not the whole fire.
• Black Thursday vs Black Tuesday: Black Thursday is 24 October 1929, when the panic began. Black Tuesday is 29 October 1929, when the crash peaked [1]. Exams often swap the two.
• Smoot-Hawley Tariff Act: it came after the crash, in June 1930. It did not cause the Depression, but it worsened it and blocked recovery [2].
• Civil Disobedience / Salt March: this was the Indian political response to Depression-era distress, not part of the crash. The Salt March ran from 12 March to 5 April 1930 [3]. NCERT dates the launch of Civil Disobedience to 1931.

Prelims Hooks

• Black Thursday = 24 October 1929; Black Tuesday = 29 October 1929. Over these four trading days the Dow Jones fell from 305.85 to 230.07 [1].
• The crash happened on the New York Stock Exchange (Wall Street). It was the US trigger of the Great Depression, which lasted c. 1929 to the mid-1930s.
• Chronological order: US overseas loans fall from over $1 billion (first half of 1928) to one-quarter of that → Wall Street Crash (October 1929) → Smoot-Hawley Tariff Act (June 1930) [2] → Salt March (12 March–5 April 1930) [3] → Gandhi–Irwin Pact (5 March 1931) [3].
• After the crash: over 4,000 US banks closed by 1933, and about 110,000 companies collapsed between 1929 and 1932.
• World trade fell about 65 per cent between 1929 and 1934, and about two dozen countries raised tariffs within two years of Smoot-Hawley [2].
• Trap: India's trade halved (1928–1934), wheat prices fell 50 per cent, and raw jute prices fell over 60 per cent. Yet urban salaried classes, rent-receiving landowners and protected industry gained. Not every group in India lost.

Mains Points

• One market crash, a world crisis. The crash spread because the world economy was already tied to American money.
• US lending had already been cut sharply before the crash, and the crash made banks call back even more.
• The gold standard and new tariff walls passed the shock on from country to country [1][2].

• This makes it a strong case study for GS-I world history on how a global economy carries crises from one country to another.

• From Wall Street to the Bengal jute field. Within a few years of the crash, India's trade halved and jute prices crashed by over 60 per cent.

• The colonial government still refused to cut its revenue demand, and peasants had to sell their gold.

• Those gold exports helped Britain more than India. This is a concrete example for the "drain" argument: India was tied to a world market it did not control.

• Economic crisis and political protest went together. Distress set off by the crash gave Civil Disobedience its peasant base and its large scale.

• At the same time, nationalist pressure won tariff protection that helped Indian industry grow.
• So the same crisis pushed the countryside into revolt and helped the towns. GS-I answers should treat the economic and political sides together.

Related concepts

• Gold standard
• Great Depression
• Smoot-Hawley Tariff 1930
• New Deal
• Keynesian economics

Read more

• The Great Depression and India