Stock Market Crash 1929

3 Key excerpts on "Stock Market Crash 1929"

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  eBook - ePub

  The Global 1920s

  Politics, economics and society

  • Richard Carr, Bradley W. Hart(Authors)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  The Economist in London was already hailing the development as ‘a landmark in post-war financial history’. It continued that

  the share boom of 1926–29 originated in a period of industrial prosperity which has never been surpassed in the world’s history. The stock market became a cynosure of interest for the whole American nation, high and low, rich and poor. While the boom lasted Wall Street was a market for the world’s floating resources, since to speculate in that centre, or to lend to others for that purpose, afforded a higher rate of return than any other form of contemporary activity.

  (The Economist, 2 November 1929)

  Such safe returns on capital were, for the time being, over and would not return for over two decades. The 1920s ended with perhaps their most defining moment still playing out.

  Unsurprisingly, therefore, the crash of 1929, and the events that followed, became seared in the American psyche. By the mid-1930s, the country was plunging into the series of events that would become known as the Great Depression and the world would soon follow suit. But what factors had led to this catastrophic economic collapse? After all, as the previous chapter has noted, the US stock market had crashed before, only to recover in a fairly short time. There had been extended recessions – even depressions – before. Yet the 1929 crash was different – the stock market did recover, somewhat, only to plunge again and again. This chapter considers the causes and immediate effects of the 1929 stock market crash and its effects around the world. The following chapter examines both intellectual and government policy responses to the events of 1929, and while the vast majority of the Great Depression took place in the 1930s, the foundations of what would come later were laid in the final months of the 1920s.

  Causes of the crash

  The American stock market crash of 1929 did not happen in a vacuum and was in fact the result of long-standing factors affecting the US economy. ‘In 1929’, economist John Kenneth Galbraith wrote, ‘the economy was headed for trouble. Eventually that trouble was violently reflected in Wall Street’ (Galbraith 1961 : 93). Galbraith blamed the crash on widespread speculation in stocks that exceeded all rationality, coupled with an overproduction of goods and a downturn in American agriculture. After the crash took place, he argued, it was made worse by the heavy concentration of wealth in the hands of a very few (discussed in chapter 2 on class in the present book); poor corporate practices that included regularly using income to pay off substantial debts; a weak banking structure that quickly began to fail; other countries owing the Unites States too much money (discussed in the previous chapter) and relying heavily on the US economy; and poor economic policy making (‘it seems certain that the economists and those who offered economic counsel in the late twenties and early thirties were almost uniquely perverse’, Galbraith 1961

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  Babbitts and Bohemians from the Great War to the Great Depression

  • Elizabeth Stevenson(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  THE CRASH

  Everything was happily set , everything was secure. Nothing could happen, except a crazy sailing upward of the price of stocks upon the New York Stock Exchange. People who had never put any money into stocks were aware of the way the market soared and took the breath and sense away from many citizens.

  Early in 1928, the nature of the boom changed [the boom that dated from 1922]. The mass escape into make-believe, so much a part of the true speculative orgy, started in earnest. . . . While the winter months of 1928 were rather quiet, thereafter the market began to rise, not by slow, steady steps, but by great vaulting leaps. [In 1929 there was a February drop and a March drop, but] . . . after June 1 all hesitation disappeared. Never before or since have so many become so wondrously, so effortlessly and so quickly rich.1

  Talk about the stock market was widespread. It seemed to many that if they did not know what margin was, or investment trusts, or brokers’ loans, or a bull market, their neighbors or friends did, and they were engaged in an exciting, profitable, and mysterious kind of transaction from which it was dull and stupid to be excluded. Sober, after-the-fact analysis shows that not a great proportion of the total population played the market.

  The member firms of twenty-nine exchanges in that year [1929] reported themselves as having accounts with a total of 1,548,707 customers. Of these, 1,371,920 were customers of member firms of the New York Stock Exchange. Thus only one and a half million people, out of a population of approximately 120 million and of between 29 and 30 million families, had an active association of any sort with the stock market. And not all of these were speculators.2

  Probably only 600,000 engaged in margin trading. Yet the infection of the interest was what tinged the tone of the time, not the cold truth of the small number, a situation bearing comparison with the slaveowning of the old South when few were slaveholders but when many shared the psychological attitude of slaveholders. There was a craziness in the air in 1929 in which many more took part than those pouring their money into stocks.

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  A History of Financial Crises

  Dreams and Follies of Expectations

  • Cihan Bilginsoy(Author)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  The NYSE offices closed from Thursday afternoon until Monday, and the FRBNY cut the discount rate to 5 percent. Although prices appeared to recover between January and April 1930, this was only temporary. In the summer of 1932 the stock market reached its nadir, 81 percent lower than its September 1929 peak in inflation-adjusted terms. This was the lowest the stock market had been since the nineteenth century. What happened? Interpretations Was the stock market of the 1920s a bubble? As pointed out above, there were contradictory answers back then, and, unsurprisingly, the debate has not abated to this day. Was the stock market overvalued? Fisher (1933), the leading US economic theorist of the time, was a sincere believer in the fundamentals-driven market and asserted that there was no bubble in US stocks in 1929. He claimed that technological innovations, new commodities, research and development, patents, and new methods of business organization had brought about a new age of high productivity and profitability, which validated the high stock prices. The maturing of the exchanges had eliminated the previous century’s stock volatility. Professionally managed modern markets were no longer subject to insider manipulations. The emergent investor class was better educated and more informed, used scientific methods of investing, such as present-value calculation, and managed risk through portfolio diversification. These developments all brought more stability to the market

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