Question

in 1929, why did the stock market crash?

Answer 1

For the same reason real estate crashed four years ago: because it was overvalued, meaning the price of the underlying asset (in the stock market case, stocks, and in the real-estate market case, houses) was far higher than the actual value of the asset. During the run-up to the crash, people buy the asset even knowing it isn't worth that much because they expect to sell it a little later to an even bigger fool and make money. Everyone plans to bail out before the bubble pops, but of course not everyone can. As soon as it looks like the up trend is pooping out, however, there is a rush for the exits as everyone tries to bail out at once, and you get a steep decline in prices.

The very fact that we just had a bubble in real estate (and one in dot-com stocks in the late 90s) should tell you that the causes of the '29 crash were certainly NOT in any of those things that have since changed, e.g. a lack of regulation or government reaction, since we had both those things (among others) in the 1990s and 2000s, and they did exactly squat to prevent more bubbles from arising and popping.

As to why bubbles arise at all...well, in part it's just human nature. As a species, we are (1) overly optimistic and (2) swayed by group opinion. Any species with habits like that is going to be prone to bouts of irrational group exuberance, i.e. bubbles. They have always been with us, and always will be.

As to why a bubble in stocks in the 20s, I think the argument would be that it was in this era that rapid communication -- telegraph, telephone, automobile, even airplane to some very limited extent -- first really allowed people to invest in companies about which they really knew nothing, other than their name and price of their stock. Before this time, as a rule stock was bought and sold only by a small group of wealthy investors who knew each other and knew the companies involved very well. For example, Edison would sell stock to his wealthy friends, all of whom had known him and his company for years. It's a much smaller, much more intimate circle, and irrational mob exuberance is much harder to maintain, just like it's much harder for you and ten of your well-known friends to form a lynch mob, compared to 11 strangers on a bus or subway car faced with some provocation. You know each other too well.

But the early part of the 20th century opened up a new era of anonymous investing, when you could buy stock and invest in schemes about which you knew very little. It was very tempting to entrepreneurs, of course -- allowed them to raise far larger sums of capital much more quickly. But it was a ripe ground for craziness, and so craziness happened.

Answer 2

which stock market? are you talking aboutthe stock market crash in wall street?