The Wall Street Crash of October 1929 That Triggered the Decade-Long Global Great Depression

The 1920s US economy had grown approximately 50 percent across the decade. Stock market participation had broadened from approximately 1 million Americans in 1920 to approximately 4 million by 1929. Broker margin loans had risen from approximately $1 billion in 1921 to approximately $8.5 billion by 1929 — investors were purchasing stocks with up to 90 percent borrowed money.

The Dow Jones Industrial Average reached a record 381.17 on 3 September 1929. Across September-October 1929 the index drifted approximately 10 percent below that peak in a slow correction.

The Crash

The selling accelerated on Thursday 24 October 1929 (“Black Thursday”). The Dow opened down approximately 11 percent. A consortium of New York bankers led by Thomas Lamont of J.P. Morgan & Co. publicly purchased blocks of US Steel and other blue-chip stocks at approximately 13:00, stabilising the market for the close. The Dow finished down only 2 percent.

Selling resumed Monday with greater intensity. Black Monday 28 October 1929: Dow fell 12.8 percent — the largest single-day percentage decline at the time. Black Tuesday 29 October 1929: Dow fell 11.7 percent on volume of approximately 16.4 million shares — a volume record not surpassed until 1968. The Dow had fallen approximately 25 percent across the two days.

The market continued falling through the following three years. The Dow bottomed at 41.22 on 8 July 1932 — an 89 percent decline from the September 1929 peak. The Dow did not regain the 381 level until November 1954 — 25 years after the Crash.

What the Crash transmitted

The Crash itself was a wealth-destruction event affecting principally the approximately 4 million Americans who held stocks. The Great Depression that followed was worse than other 20th-century market crashes because of three transmission mechanisms:

— The gold standard — the international monetary system constrained central banks from monetary expansion. The Federal Reserve actually tightened policy in 1931-1932 in response to gold outflows after Britain abandoned the gold standard on 21 September 1931 — Banking collapse — approximately 9,000 US banks failed across 1930-1933. Approximately $7 billion of depositors’ funds were lost. There was no federal deposit insurance until 1933 — Tariff retaliation — the Smoot-Hawley Tariff Act of 17 June 1930 raised average US tariffs to approximately 60 percent. Major US trading partners retaliated. World trade fell approximately two-thirds across 1929-1933

The Depression

US economic statistics at the 1933 trough:

— GDP had fallen approximately 30 percent from the 1929 peak — Industrial production had fallen approximately 47 percent — Unemployment had risen to approximately 25 percent (approximately 15 million workers) — Wholesale prices had fallen approximately 33 percent (deflation) — Approximately 273,000 families had been evicted during 1932 alone — Approximately 2 million homeless people were estimated to be wandering

US President Herbert Hoover lost the November 1932 election to Franklin Roosevelt by 472-59 electoral votes. Roosevelt’s inauguration on 4 March 1933 came at the depth of the banking crisis — approximately one-quarter of all US banks had closed in the preceding three weeks.

Roosevelt’s first 100 days produced the foundational New Deal programmes: the Emergency Banking Act (9 March 1933) restored the banking system; the Glass-Steagall Act (16 June 1933) established federal deposit insurance and separated commercial from investment banking; the Securities Act (27 May 1933) regulated securities issuance.

The global Depression

The Depression spread internationally through trade, finance, and the gold standard. Germany — which had been dependent on US capital — suffered industrial production decline approximately equal to the US figure. Unemployment in Germany reached approximately 30 percent by 1932.

The economic collapse contributed to the political polarization that brought Adolf Hitler to the German Chancellorship on 30 January 1933.

The Depression’s economic effects lasted until the production mobilization of the Second World War. US industrial production did not exceed 1929 levels until 1939.