How much did the Wall Street crash contribute to the Great Depression?

The Wall Street crash in October of 1929 was more of a symptom of weaknesses in the economy than a cause of the Great Depression. The causes of the Great Depression were more long-term in nature. One of the causes, historians believe, was the effect of people buying stocks on margin—meaning that they did not put down the full price of the stock (a practice that is no longer allowed). When the stocks lost money, people could not make up the difference. In addition, the economy was in a state of flux. Industries that had been shoring up the economy in the 1920s, such as the manufacturing of consumer goods, were facing a downturn, but newer industries, such as aviation, were not yet developed. The crash occurred before these newer industries could come to fruition. In addition, most workers in the 1920s experienced stagnant wages, meaning that they could not afford to purchase the new goods that were being produced. Therefore, production was far outstripping demand, leading to an economic downturn.

The Wall Street crash was a symptom of the potentially serious issues that the American economy faced as the 1920s ended. The crash highlighted these issues which ultimately brought about the Great Depression. Many people had invested heavily in the stock market in the 1920s with most of the people buying stocks on credit. Because the stock market had been increasing so rapidly, many people didn’t spend a great deal of time researching the companies and the value of the stocks in which they were investing. The prevailing attitude was that as long as the Republicans were in power, the economy and therefore businesses would continue to grow and prosper. When the market crashed, brokers demanded full payment of the balances owed by their clients. Since people didn’t have the funds available to pay their brokers, they either had to sell their stocks to raise the cash or go to their bank and withdraw money. However, many banks had invested in the stock market, and they were in the same situation as their customers. They simply couldn’t get funds unless they sold their stocks. When so many people tried to sell their stocks at the same time, stock prices dropped further. Many people lost virtually all of their money either because of the bank failures or because of the huge drop in the value of their stocks.

Since banks had little money to loan and since consumers had little money to spend, many businesses were forced to close or significantly reduce production. This made the economic situation worse as many people lost their jobs. At the same time, business owners found it hard to sell their products abroad because the Smooth-Hawley Tariff raised tariffs on imports. Other countries then raised tariffs on U.S. exports leading to declining world trade opportunities for businesses.

Thus, the crash of the stock market triggered a series of events that led to the start of the Great Depression.

The Wall Street Crash of 1929 was not really a cause of the Depression.  It was just the catalyst that activated all the problems with the US economy.

We know that stock market crashes themselves don't cause depressions.  We have had crashes since 1929 and none of them has caused a depression.  This seems to indicate that a crash is not a cause of an economic downturn but rather a symptom.

Economists do not agree completely on the causes of the Great Depression.  Some point to the fact that the big countries of the world were returning to a gold standard.  This reduced the money supply and helped cause the Depression.  Others say that firms in the US were producing too much and not paying their workers enough to consume it all.  But no one argues that the Crash actually caused the Depression.  As this link says,

the stock market collapse did not cause the depression.

Why did the 1929 stock market crash lead to the Great Depression?

First of all, we must be careful not to say that the stock market crash caused the Depression. It is more accurate to say that the crash was something of a catalyst that upset an economy that was already fragile.  It was the underlying fragility of the economy that caused the Depression.

Historians typically blame overproduction in the industrial sector and a poor distribution of wealth for the fact that the economy was fragile.  They say that American factories produced too many goods during the 1920s relative to what consumers could buy.  The workers were not making enough money to buy all of the things the factories produced.  The wealth was concentrated in the hands of a few.

 Even before the crash, consumption was slowing.  When the crash came about, consumption dropped even further.  When this happened, more and more people were put out of work.  As more people lost their jobs, consumption dropped even further in a vicious cycle.  This led to the Depression.

 The Depression then got even worse with some of the measures taken to end it.  The worst of these was the Smoot-Hawley Tariff.  When the US erected trade barriers (as did other countries) trade was choked off and there was even less of an outlet for US goods.  This, of course, led to further job loss.