Le Jeudi Noir : La crise du 24 octobre 1929

Othmane Chen

27 Mar 202007:54

Summary

TLDRThis script delves into the historical context and causes of the 1929 Wall Street Crash, often referred to as 'Black Thursday.' It clarifies that contrary to popular belief, the crash did not cause the Great Depression but rather signaled its onset. The video explains the economic boom of the 1920s and the speculative bubble that inflated stock values far beyond the actual performance of companies. Using John Maynard Keynes's 'beauty contest' metaphor, it illustrates the irrational exuberance of investors leading to the market crash. The script also touches on the agricultural sector's impact and the domino effect that led to a global financial panic, setting the stage for the Great Depression. The video promises a future discussion on the broader economic crisis of the 1930s.

Takeaways

📉 The script discusses the global stock market crash on March 9, 2020, which was the largest since 2008, and draws parallels to the 1930s Great Depression.
🔍 It clarifies that the Black Thursday stock market crash of 1929 did not cause the Great Depression but rather signaled its beginning.
🏙️ The 1920s were characterized by economic prosperity, urbanization, and the advent of mass consumption, which led to a false sense of security.
🎷 The script mentions the cultural aspects of the 1920s, such as the rise of jazz and Hollywood, as indicators of the era's optimism.
💡 The explanation of the stock market and how it operates, including the concept of stocks, shares, and dividends, is provided to help understand the crash.
📊 The script highlights the difference between the theoretical function of the stock market and the reality of speculative behavior leading to market bubbles.
💸 It explains the 'beauty contest' metaphor by John Maynard Keynes to illustrate the speculative nature of stock market investments.
💔 The 1929 crash was a result of overenthusiasm and overvaluation of the economy, with stock values skyrocketing far beyond actual production growth.
🚜 The agricultural sector's overproduction and the subsequent drop in prices played a role in the crash, as farmers had to sell at low prices to offload surplus.
🏠 The script points out that the real estate and automobile industries had started to slow down before the crash, which was overlooked due to the general optimism.
😨 The panic that ensued after the market crash was due to the realization of the overestimation of the real economy and the subsequent loss of trust in banks.
🌐 The financial crisis of 1929 had a domino effect, impacting not just the United States but also the global economy.

Q & A

What significant event occurred on Monday, March 9, 2020, in the global stock markets?
-On Monday, March 9, 2020, the global stock markets experienced their most significant drop since 2008, reminiscent of the 1930s economic crisis.
What is the common misconception about the Black Thursday of 1929?
-The common misconception is that Black Thursday, October 24, 1929, caused the Great Depression. In reality, it did not cause the crisis but rather announced the beginning of it.
What were the economic conditions like in the United States during the 1920s?
-During the 1920s, the United States experienced a period of significant economic growth, known as the 'Roaring Twenties.' There was widespread urbanization, modernization, and a shift from steam to electricity, leading to the era of mass consumption.
How did the stock market function during the 1920s leading up to the crash of 1929?
-The stock market during the 1920s was characterized by a speculative bubble where investors bought stocks based on the expectation of rising prices rather than the actual performance of the companies.
What is the 'beauty contest' metaphor used by economist John Maynard Keynes to explain market behavior?
-The 'beauty contest' metaphor by John Maynard Keynes suggests that investors do not buy stocks based on their intrinsic value but rather on which stocks they believe other investors will buy, leading to speculative bubbles.
What factors contributed to the stock market crash of 1929?
-Factors contributing to the 1929 stock market crash included overenthusiasm due to the booming economy, excessive credit from banks, overproduction in agriculture, and a lack of diversification in investments.
How did the production and stock values compare in the United States from 1921 to 1929?
-Between 1921 and 1929, production in the United States increased by 50%, but the value of stocks on Wall Street rose by 3,100%, indicating a severe overestimation of the economy's performance.
What sectors began to slow down significantly before the 1929 crash?
-The automobile and real estate industries began to slow down significantly before the 1929 stock market crash.
How did the agricultural sector impact the economy leading up to the 1929 crash?
-The agricultural sector had expanded during World War I, and by the 1920s, overproduction led to farmers having to sell at very low prices, creating a significant imbalance in the economy.
What was the immediate aftermath of the realization of the overestimated economy during the 1929 crash?
-The immediate aftermath was panic, as investors rushed to sell their stocks, leading to a rapid decline in prices and the collapse of the stock market, which then spread globally.
How did the 1929 financial crisis differ from the 2008 financial crisis in terms of its impact on the economy?
-The 1929 financial crisis was characterized by an overestimated real economy leading to a financial crash, whereas in the 2008 crisis, it was the financial sector's collapse that impacted the real economy.

Outlines

00:00

📉 Stock Market Crash of 1929 and the Great Depression

This paragraph discusses the historical context and the events leading up to the stock market crash on Black Thursday, October 24, 1929. It clarifies misconceptions about the crash, explaining that it did not cause the Great Depression but rather signaled its beginning. The economic boom of the 1920s, marked by urbanization, technological advancements, and increased wages, set the stage for a period of mass consumption and cultural prosperity. However, this expansion masked underlying issues that would lead to the subsequent economic collapse. The paragraph also provides an explanation of how stock markets function, including the basics of trading shares and the impact of investor behavior on stock prices. It introduces the concept of speculative bubbles and how their burst can lead to market crashes, using the metaphor of a beauty contest to illustrate the irrational exuberance of investors.

05:01

🌾 Economic Overheating and the Agricultural Sector's Role in the 1929 Crash

The second paragraph delves into the specifics of the economic conditions prior to the 1929 stock market crash. It highlights how the U.S. economy was booming, with production increasing by 50% from 1921 to 1929, while stock values on Wall Street soared by an unprecedented 3,100%, indicating a severe disconnect between stock values and actual economic performance. The paragraph also points out that certain industries, such as automobiles and real estate, had begun to slow down significantly by 1925, but this was overlooked due to the widespread belief in continued economic prosperity. The role of the agricultural sector is emphasized, as overproduction and debt led to a drop in prices, further destabilizing the economy. The paragraph concludes by explaining how the realization of this overestimation of the real economy led to a panic selling of stocks, which cascaded into a global financial crisis, and how the subsequent loss of trust in banks exacerbated the situation, leading to the Great Depression. It also draws a parallel between the events of 1929 and contemporary economic issues, as well as the 2008 financial crisis, where the relationship between finance and the real economy was reversed.

Mindmap

Keywords

💡Black Thursday

Black Thursday, also known as the Thursday after the stock market crash of 1929, marked the beginning of the Great Depression. It is significant in the video as it represents the starting point of a major economic downturn. The script refers to this event to draw parallels with the stock market crash of 2008 and to discuss the factors leading to the collapse of the U.S. economy.

💡Great Depression

The Great Depression was a severe worldwide economic depression that took place mostly during the 1930s, beginning in the United States. In the video, it is the historical context used to discuss the aftermath of the stock market crash and the economic conditions that led to widespread unemployment and poverty. It is contrasted with the economic boom of the 1920s and the subsequent crash.

💡Stock market crash

A stock market crash is a sudden dramatic decline in stock prices across a significant cross-section of a stock market. In the video, the crash of 1929 is the central event that led to the Great Depression. The script explains how the crash was a result of speculative bubble and overvaluation of stocks, which eventually burst, causing a panic sell-off.

💡Speculative bubble

A speculative bubble occurs when the price of an asset increases rapidly, far exceeding its intrinsic value, often driven by speculation or investor exuberance. The video describes the 1920s stock market as a speculative bubble, where stock prices were inflated far beyond the actual value of the companies they represented, leading to the eventual crash.

💡Economic boom

An economic boom is a period of rapid economic growth and prosperity, often characterized by increased consumer spending and investment. The video contrasts the economic boom of the 1920s, known as the 'Roaring Twenties,' with the subsequent depression, highlighting the stark shift from prosperity to economic hardship.

💡Dividends

Dividends are payments made by a corporation to its shareholders, usually as a distribution of profits. In the video, dividends are mentioned as one of the benefits of owning shares, but the focus is on the speculative nature of the stock market where investors were more concerned with the potential for capital gains rather than dividends.

💡Shareholders

Shareholders are the owners of shares in a company and are entitled to a share in its profits. The video discusses shareholders' behavior leading up to the 1929 crash, emphasizing how their speculative actions contributed to the overvaluation of stocks and the eventual market collapse.

💡Credit

Credit refers to the practice of lending money, which businesses and individuals can use to finance their activities. In the video, the easy availability of credit is highlighted as a factor that fueled the speculative bubble, as banks were too lenient in lending money for stock speculation rather than productive investments.

💡Speculation

Speculation is the act of investing in assets with the hope of making a profit from changes in their prices, rather than from their intrinsic value or income. The video explains how speculation in the stock market led to inflated stock prices and the creation of a bubble that eventually burst, causing the crash.

💡Keynes' beauty contest metaphor

The Keynes' beauty contest metaphor is a concept introduced by economist John Maynard Keynes to explain investor behavior in a stock market. In the video, this metaphor is used to illustrate how investors in the 1929 market did not buy stocks based on their intrinsic value but rather on which stocks they thought other investors would buy, leading to irrational exuberance and market instability.

💡Agricultural sector

The agricultural sector refers to the part of the economy that produces food, fiber, and other plant and animal products using the natural resources of land and water. The video mentions the agricultural sector as one of the areas that contributed to the crash, as overproduction and falling prices led to financial difficulties for farmers, which in turn affected the broader economy.

Highlights

On March 9, 2020, global stock markets experienced their biggest drop since 2008, reminiscent of the 1930s crisis which began with the Wall Street crash on Thursday, October 24, 1929, known as Black Thursday.

Contrary to popular belief, Black Thursday did not cause the crisis itself but rather announced the crisis of the 1930s, which was a result of economic developments in the 1920s.

The 1920s were characterized by economic prosperity, urbanization, modernization, and a significant increase in wages, leading to the beginning of mass consumption.

Cultural phenomena like jazz and Hollywood's global film market contributed to the optimism of the era.

Despite the outward prosperity, several underlying factors were leading to the upcoming crash and the crisis of the following decade.

An explanation of how stock markets work, including the financing of companies through credit and the issuance of shares.

A share represents a percentage of ownership in a company, allowing shareholders to receive dividends and sell their shares on the financial market.

The theoretical function of share prices is to reflect a company's performance, but in practice, they often reflect investor speculation rather than actual value.

John Maynard Keynes' metaphor of the beauty contest is used to explain the speculative nature of stock market investments.

The 1929 stock market crash, remembered as Black Thursday, was not the worst day but marked the beginning of a series of worse days.

The crash was a result of overenthusiasm due to the booming economy of the 1920s, which led to excessive credit and speculation.

Banks were lending more for speculation than for purchasing homes or starting businesses, contributing to the bubble.

Between 1921 and 1929, U.S. production increased by 50%, but Wall Street stock values rose by 3,100%, indicating a severe overestimation of the economy.

The automobile and real estate industries began to slow down significantly from 1925, but this was overlooked due to the prevailing optimism.

Agriculture also played a role in the crash, as post-World War I production increases led to a surplus and low prices, impacting farmers.

The realization of the overestimation of the real economy led to a panic, causing a domino effect of selling shares and a market collapse.

The financial panic led to a loss of trust in banks, resulting in widespread withdrawals and a deepening of the crisis.

The 1929 financial crisis was a significant event, but it was not the cause of the Great Depression, which was a symptom of the beginning of the crisis.

The situation is somewhat similar to today's economy, where the real economy is struggling, and finance takes a significant hit.

The video differentiates the 1929 crisis from the 2008 crisis, where finance impacted the real economy.