THE GREAT CRASH OF 1929 AT SE VENTY -FIVE By Richard Sylla After the September peak, the Great Crash. Dow declined moderately to 351 on The price slide on Wall Street con- In 2004 Americans celebrate, if October 15. During the month after tinued after Black Monday and Black that is the right word, the 75th October 15, all hell broke loose. Tuesday, just as it had begun before anniversary of the Great Stock Market From an intra-day high of 330 on those two defining days. Continuing Crash of 1929. There had been mar- October 23, the Dow reached an weakness in early November pushed ket crashes before 1929. And there intra-day low of 272 the next day, the Dow down to the crash-period were crashes after 1929. But 1929 is Black Thursday, on record volume closing low of 199 on November 13. still considered THE BIG ONE. of 12.9 million shares. Well-publi- From the September peak, stocks had How did the Great Crash develop cized and large-scale stock pur- lost 48 percent of their value in a little in 1929? What did we think of it at its chases organized by a New York over two months. Nonetheless, the 25th and 50th anniversaries in 1954 bankers’ pool during the day on Dow was still twice as high as it had and 1979? And how might we view it Black Thursday moved the close up been six years earlier. now, at its 75th? Exploring these ques- to 299. Prices stabilized at that Those are the essential facts of the tions, I conclude that we need to for- level the next two days — the New Great Crash. But how are we to inter- get some of what “everyone knows” York Stock Exchange had Saturday pret them? Why, of all of financial about the Crash of ’29. sessions then. history’s crashes, was this crash THE 1929. Stocks, as measured by the Then on Black Monday, October BIG ONE? Dow Jones Industrial Average (the 28, the Dow fell from the 299 close on Without a doubt it is because the Dow), reached a peak close of 381 on Saturday to a close of 261. The next Crash of 1929 came at the beginning September 3, 1929, and the average day, Black Tuesday, the Dow crashed of an economic downturn that lasted closed at 351 on October 15, a mod- to a low of 212 and a close of 230 on longer than all other downturns in est decline from the peak. From its new record volume, 16.4 million American history, from 1929 to 1933. close of 96 at the end of 1923 to the shares. Those two late October days This Great Depression was the great- peak of September 1929, the Dow in 1929, when the Dow lost 23 per- est economic crisis in America’s his- increased at a compound rate of 24 cent of its value from Saturday’s close tory. By the time the Dow reached its percent per year. to Tuesday’s, define for many the Depression low of 41 in mid-1932, it www.financialhistory.org11 Financial History ~ Fall 2004 y r o t s i H l a i c n a n i F n a c i r e m A f o m u e s u M e h t f o n o i t c e l l o C Front page of the Brooklyn Daily Eagle from Black Thursday, October 24, 1929. was off almost 90 percent from the bells, Congress invited Professor when Galbraith drew his lugubrious 1929 peak, and less than half of Galbraith to testify in early 1955 at lessons, no one in 1979 was happy where it had been at the end of 1923. hearings intended to probe into about that. The Dow had reached And since the Crash came at the whether the 1950s boom and the those 1979 levels much earlier, in beginning of the Great Depression, surpassing of 1929 stock prices por- 1964, and even surpassed them in the crash must have been a major tended another bust. 1965. In a sense, by 1979 stocks — at cause of the Depression. “Toward the end [of his testi- least the Dow stocks as a group — had At least this is what many began mony],” Galbraith reported in the not gained in 15 years. to believe as economic conditions introduction to a later edition of the The intervening period had been got worse and worse during 1930- book, “I suggested that history could terrible, with Vietnam, the collapse 33. As the idea worked its way into repeat itself, although I successfully of the Bretton Woods system of fixed textbooks, it is what Americans resisted all invitations to predict exchange rates, wage and price con- continued to believe for decades. when. I did urge a stiff tightening of trols, oil price shocks, Watergate, The Great Crash-Great Depression margin requirements as a precaution- rampant inflation, and ever-rising connection is what many of our his- ary step.”1 After referring to “the interest rates. In the midst of all this tory textbooks still teach us. Most suicidal tendencies of the economic came the worst bear market since the of us still believe it. Nonetheless, system,” one of which is “the recur- 1930s. From a peak of 1,051 in Jan- from the perspective of 75 years, it rent speculative orgy,” Galbraith uary 1973, the Dow fell to 585 in is likely a flawed lesson. added, “The Great Crash of 1929 October 1974. This was a loss of 45 1954. From the perspective of 25 contracted the demand for goods, percent, almost as great a loss as the years, the Crash-Depression nexus destroyed for a time the normal 48 percent drop from September to seemed anything but a flawed lesson. machinery for lending and invest- November in 1929. Since the decline In 1954, the Dow opened the year at ment, helped arrest economic growth, was spread over 21 months, few 283 and closed it at 404. It was the caused much hardship and, needless termed it a crash. It was just a bear first time the index had reached and to say, alienated countless thousands market, if maybe worse than most surpassed its peak of September 1929, from the economic system. The bear markets. Although the economy a quarter century before. That set off causes of the crash were all in the was hardly in good shape, the 1973- alarm bells in the country, if not on speculative orgy that preceded it.”2 74 bear market was not followed by Wall Street. That is how the 1929 crash looked a depression, just a recession that Sensing opportunity, economist to an informed observer 50 years ago. ended in 1975. and author John Kenneth Galbraith 1979. When the Great Crash had By 1979, the first of three consecu- of Harvard produced a small book, its 50th anniversary, no one seemed to tive years of double-digit inflation, no The Great Crash, 1929, a witty and care. The Dow opened that year at one expected a crash because it sardonic treatment of the subject 811 and, after reaching a high of 898, seemed that stocks had already still worth reading half a century it closed at 839. Although the aver- crashed, at least in real (inflation- later. Hearing some of the alarm ages had doubled since the mid-1950s adjusted) terms, since the mid 1960s. Financial History ~ Fall 200412 www.financialhistory.org It took three years to turn around 2000 peak of 11,723, the Dow slid to a bear market. But the Great Crash this long chain of awful events. But 7,286 by October 2002, a drop of 38 itself was almost entirely reversed in the turn-around began in 1979 with percent. That is remindful of the 1973- five months. By way of comparison, it the elevation of Paul Volcker to head 74 bear market. The Nasdaq compos- took 15 months to reverse the similar the Federal Reserve. Volcker started ite index, which was not around in crash of October 19, 1987. the process of ending inflation by 1929, fared far worse. It peaked at So in 2004 the case for making the allowing interest rates to rise to 5,049 in March 2000, and hit a low of Great Crash a prime cause of the unprecedented levels in U.S. history. 1,119 in October 2002. That decline of Great Depression is far weaker than it The result was a mild recession in 78 percent, nearly as bad as the 89 per- was in 1979 or 1954. What then did 1980, and the worst recession since cent decline of the Dow from 1929 to cause the Depression? That is a long the 1930s in 1981-82. Ronald Rea- 1932, is remindful of what happened story, and there is not agreement on gan, who passed on earlier this year, to stocks during the Great Depression. all of its details. But there is consensus became president in 1981. To his Yet there was not a Great Depression that economic policymakers made credit, President Reagan supported after 2000, only a mild recession in many mistakes as the slide from reces- the Volcker Fed’s efforts to control 2001. In 2004, the Dow is above sion into depression took place after inflation when politics might have 10,000 again, and the Nasdaq is in the 1929. They raised taxes and duties on dictated blaming the Fed for the vicinity of 2,000.