Even worse, it caused millions of people to worry and lose faith in the economy. They were not sure what to expect tomorrow. Business owners would not spend money for new factories or business operations. Instead, they decided to wait and see what would happen.
This reduced production and caused more workers to lose their jobs. Fewer workers meant fewer people with money to buy goods. And fewer people buying goods meant less need for factories to produce. So it went. In short, economic disaster.
Why did the stock market crash? One reason, people had been paying too much for stocks. Everyone believed that prices would go higher and higher forever. People paid more for stocks than the stocks were worth. They hoped to sell the stocks at even higher prices.
It was like a children's balloon that expands with air, blowing bigger and bigger until it bursts.
But there were other important reasons. Industrial profits were too high and wages too low. Five percent of the population owned one-third of all personal income. The average worker simply did not have enough money to buy enough of all the new goods that factories were producing. Another problem was that companies were not investing enough money in new factories and supplies.
There were also problems with the rules of the stock market itself. People were allowed to buy stocks when they did not have the money to do so.
Several government economic policies also helped cause the stock market crash of nineteen twenty-nine. Government tax policies made the rich richer and the poor poorer. And the government did little to control the national money supply, even when the economy faced disaster.
The stock market crash marked the beginning of the Great Depression -- a long, slow, painful fall to the worst economic crisis in American history. The Depression would bring suffering to millions of people. It would cause major political changes. And it would be a major force in creating the conditions that led to World War Two.