When the Money Stopped

This chapter examines the impact of the stock market crash of October 1929 on the monetary system of the United States. Very little attention has been given to the factors which converted the uncomfortable and distressing crises of the previous century into the profound and enduring tragedy known as the Great Depression. Neither the stock market crash of October 1929 nor the antecedent speculation has often been deemed to be a decisive cause. The chapter first considers how the stock market crash affected investment expenditures by business and consumer expenditures before discussing the bank failures that followed the crash. It also explores how bank failures and the fear of bank failures induced deflation and how the Federal Reserve System began open-market operations after harboring fears of inflation. Finally, it looks at the reform of the Federal Reserve System by legislation in 1933, 1934, and 1935.