Hot! The 1929 Stock Market Crash Economic History Services

Harold Bierman, Jr., Cornell University Overview

The 1929 stock market crash is conventionally said to have occurred on Thursday the 24th and Tuesday the 29th of October. These two dates have been dubbed "Black Thursday" and "Black Tuesday," respectively. On September 3, 1929, the Dow Jones Industrial Average reached a record high of 381.2. At the end of the market day on Thursday, October 24, the market was at 299.5 a 21 percent decline from the high. On this day the market fell 33 points a drop of 9 percent on trading that was approximately three times the normal daily volume for the first nine months of the year. By all accounts, there was a selling panic. By November 13, 1929, the market had fallen to 199. By the time the crash was completed in 1932, following an unprecedentedly large economic depression, stocks had lost nearly 90 percent of their value.

The events of Black Thursday are normally defined to be the start of the stock market crash of 1929-1932, but the series of events leading to the crash started before that date. This article examines the causes of the 1929 stock market crash . While no consensus exists about its precise causes, the article will critique some arguments and support a preferred set of conclusions. It argues that one of the primary causes was the attempt by important people and the media to stop market speculators. A second probable cause was the great expansion of investment trusts, public utility holding companies, and the amount of margin buying, all of which fueled the purchase of public utility stocks, and drove up their prices. Public utilities, utility holding companies, and investment trusts were all highly levered using large amounts of debt and preferred stock. These factors seem to have set the stage for the triggering event. This sector was vulnerable to the arrival of bad news regarding utility regulation. In October 1929, the bad news arrived and utility stocks fell dramatically. After the utilities decreased in price, margin buyers had to sell and there was then panic selling of all stocks.

The Conventional View

The crash helped bring on the depression of the thirties and the depression helped to extend the period of low stock prices, thus "proving" to many that the prices had been too high.

Were Stocks Obviously Overpriced in October 1929? Debatable Economic Indicators Were Strong

Sources: 1922-1929 measures are from the Stock Market Study, U.S. Senate, 1955, pp. 40, 49, 110, and 111; 1930-1932 Wigmore, 1985, pp. 637-639.

Events Precipitating the Crash A Look at the Financial Press Wednesday, October 16, 1929 Monday, October 21, 1929 Wednesday, October 23, 1929 Thursday, October 24, 1929 Tuesday, October 29, 1929 An Interpretive Overview of Events and Issues Contemporary Worries of Excessive Speculation Buying on Margin Investment Trusts The Public Utility Sector

Commonwealth Edison

Consolidated Gas of New York

Detroit Edison

Pacific Gas & Electric

Public Service of New Jersey

Straws That Broke the Camel's Back? Edison Electric of Boston Public Utility Regulation in New York The Public Utility Multipliers and Leverage Conclusions and Lessons References

1923-25 average = 100.

Based a price to book value ratio of 3.25 (Wigmore, p. 39).