• During the prosperity of the 1920's, stock prices increased drastically
  • Many successful citizens began to buy thousands of stocks on margin, expecting to make a profit
  • In order to invest in these stocks, people borrowed money
  • As a result, vast inflation occurred
  • Stock Market prices began to drop in October 1929
  • People panicked and sold all their stocks to ensure they didn't lose any money
  • This caused the stock markets to drop even further
  • Banks agreed to pump hundreds of millions of dollars into the market to stabilize. However, they quickly withdrew their investment
  • By October 24th, the Stock Market crashed (Black Tuesday)
  • Citizens who had invested in margins lost everything in a matter of minutes
  • By November 13th that same year, many stocks of large corporations had dropped up to 48% [1]

Significance and Relation to the Ebb and Flow of Liberal Economics

Because of the Stock Market Crash, people were willing to sell their possessions for any amount of money
This event shows us that although laissez-faire economics works for a period of time, at some point, the government needs to step in to help. A total liberal economy will work to an extent but in order to stay in control, there needs to be an invisible hand. This was the first realization in society that classical liberal ideals and laissez-faire economics would not work.


[1] Fielding, J. (2009). Chapter 6: The Evolution of modern liberalism. In L. M. Linton & M. Schwalbe (Eds.), Perspectives on Ideology (pp. 199-200). Ontario, Canada: Oxford University Press