Final answer:
The average American did not invest in the stock market during the crash of 1929 because they lacked the necessary savings due to poor income distribution. Furthermore, the banking crisis that followed the crash consumed the little savings most Americans had, thus preventing new investments into the market. The stock market crash revealed and exacerbated pre-existing economic weaknesses, resulting in the Great Depression.
Step-by-step explanation:
The average American did not invest in the stock market during the crash of 1929 largely due to poor income distribution, low savings, and the concentration of wealth among a small percentage of the population. This situation was compounded by the fact that 80 percent of American families had virtually no savings, and so, there were few new buyers to enter the market. The lack of capital among majority of Americans made it impossible for them to participate in the stock market, contributing to the absence of a recovery mechanism once the stock values began to fall.
The crash precipitated a banking crisis, further diminishing the capacity of Americans to invest. With over 90 percent of banks having invested in stock markets, and with minimal cash reserves due to low Federal Reserve limits, the swift decline in stock values meant that banks were left with severe losses. Consequently, bank failures ensued leading to loss of savings for the citizens who trusted them, which in turn, fed back into the vicious cycle of economic contraction, as individuals had even less money to invest or spend.
It is crucial to understand that the Stock Market Crash was not an isolated event, and while it led to heightened economic hardship, it was also a symptom of deep-seated economic imbalances. The ensuing Great Depression was a complex phenomenon that the crash helped to trigger by exposing the underlying weaknesses in the economy, such as international economic troubles, poorly distributed incomes, and fragile banking systems.