A Little Information About the Great Crash of 1929-Redux

As I write, the Dow has lost just over 5,000 points from its high on October 3rd of this year, about 2 1/2 months; or one sixth of its value.  I thought that this was a good opportunity to repost something I wrote earlier this year, about the 1929 collapse, which I think gives some perspective on what is happening now.  I want to reiterate something that I said at the end of this post, that being the recommendation to read  "The Great Crash  1929," by John Kenneth Galbraith.  This account of the Wall Street collapse is so relevant to today's events that I think everyone should take the time to read this short book.

Wall Street on October 29, 1929

I'll tell you something that I always believed until I started reading about the 1920's and 1930's, and it has to do with "Black Tuesday."  That was October 29, 1929, the day we were taught that the stock market crashed, precipitating the Great Depression, the greatest economic collapse in human history and a direct cause of World War II.  Isn't that what you, like me, were taught in school (if the subject was even mentioned?)  Even at the time, this account loomed large:

This is a subject which it might be profitable to examine, given that the Dow Jones average, which closed at 26,616 just a week ago, closed yesterday at 23,860, a loss of just over 10% in a week.  Yes, it was up a little today, but is that reason for comfort, or on the other hand, was the recent decline a reason for great concern?

I think it will be useful to examine exactly what did happen in 1929 and subsequent years.  Here is a chart of the Dow Jones average from that period, showing inflation adjusted numbers.  The data are by month, and I have added numerical information for some key months:

And here is a little table of these numbers, with percentage values of the peak:

                                                      August 1929           5419

September 1929     4899      90.4%

October 1929         3897      71.9%

November 1929     3405      62.8%

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March 1930           4173      77.0%

May 1931              2070      38.2%

Here is what I want to point out:  The Stock Market Crash of 1929 did not happen in a single day; it was a phenomenon spread out over a long period of time.  In fact, as you might be able to see from the chart, there was another minor collapse before the big one, hitting a low point of 4312, in May of 1929.  The real crash began in August, hitting a temporary low point in November of 1929, at which point the Dow had lost over a third of its value.  Even after Black Tuesday, there was tremendous pressure from the bankers and other "authorities" to deny what was happening, as you can see from the front page of the New York Times of October 30, 1929:

After this, as you can see, the market rallied, if you can call it that, hitting a temporary number of 4173 in March of 1930, before beginning its truly catastrophic collapse, bottoming out in May of 1939, at a value of only 38.2% of its 1929 high point.  The crash, in other words, was not a product of a single disastrous day, but under Republican economic stewardship continued for two years.

I think it is fair to say that everyone in 1929 should have seen the May decrease in values as a sign of serious economic instability, but instead, they just ignored it and got back on the party train.  What we have seen in the last week is certainly comparable in extent to the May, 1929 collapse, and was certainly, given its short duration, worse than what happened in the first month of the real 1929 crash.  I am not an economist, and so I am not making any predictions here, but I do believe that, if you are going to look to the past for knowledge, it is best to have that knowledge straight.

Now, there is one more thing that I have to deal with in connection with the 1929 crash; and it is the myth so vehemently forced on the country afterwards, that nobody knew that the crash was going to happen.  In fact, many economic experts predicted, for several years before the crash, that it was inevitable, but nobody in government or the financial world was willing to take the blame for pulling the plug on the gigantic 1920's party, in which everyone thought they could get rich without risk.  Of course, the naysayers are being ignored today, by a government and a financial industry that will interpret the worst fiscal fever as a wonderful specimen of endless growth.  Will it all end the same way as it did in the 1920's?  This is a prediction I will make: if "irrational exuberance," i.e. unrestrained greed, continues to be the governing principal of the day, it certainly will be.


In closing, I want to recommend a short book, which is the only economics book I have ever read that can be described as a "page turner."  It is "The Great Crash  1929," by John Kenneth Galbraith.  A great read, and you will really feel like you have learned something when you are done.  If you want more, I suggest "The Crisis of the Old Order: 1919-1933," which is the first volume of Arthur Schlesinger's "The Age of Roosevelt."  These are both available on Kindle, the second one for free, believe it or not.  The two works will serve to utterly devastate much of the fiction about the crash which those who stand to benefit from the behavior that caused the first one, have spent endless effort spreading in the last ninety years.