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Crash of '29 Recalled on 90th Anniversary of Historic Economic Calamity

Row of men at the New York City docks out of work during the depression, 1934
National Archives/Lewis Hines
Row of men at the New York City docks out of work during the depression, 1934

90 years ago, panic gripped the New York Stock Exchange as the stock market crashed on "Black Tuesday," Oct. 29, 1929.  In four days, the market plummeted 25 percent, and investors lost $30 billion - 10 times the federal budget, and more than the United States spent on World War I.  

The "Roaring Twenties," a decade of growth, prosperity and optimism unprecedented in American history, stopped dead in its tracks, and was replaced with its polar opposite -  the Great Depression.  Unemployment soared to 25 percent, and 2/3 of Americans were affected by the hard times brought by the Depression and its "evil twin," the Dust Bowl.  

What caused the Crash of 29?  According to University of South Carolina economist Dr. Douglas Woodward, the roaring economy  began to soften in 1927.  Though some saw the 1920s as representing a "permanent plateau of prosperity," the middle class wasn't growing as fast as the incredible, newly established means of mass production of consumer goods such as automobiles, refrigerators and radios.  "So you have overproduction.  We have way more capacity to produce - for the first time Americans are buying, and then the spending declined.  Business started to notice it, so they stopped investing as much."   But the stock market was still highly valued, actually overvalued - more than the "real" economy could long support, said Woodward.  It was what we now call a "bubble."  And what do bubbles do?  Eventually, they burst.

March 1929 saw a mini-crash, but the economy recovered over the summer, and the stock exchange reached a high of 381.  "Think about that," said Woodward, "because the Dow now is about 27,000.  381 was the peak of the Roaring 20s." 

The market reached that 381 in September because at the time,many investors were buying in "on margin," said the economist, meaning they could purchase large amounts of stock with only 10 or 20 percent down, borrowing the rest from their brokers.  "But then in September, that stopped.  The brokers don't want to lend any more to your retail investor.  Then the millionaires at that time ...were getting out of the market, too...."  and the downward spiral had begun.  "The brokers are calling back their loans and people have to get out of the market, and it's going down even further.  People began to see this with fear at first, and then panic starts to set in by October."

On Oct. 24, now known as "Black Thursday," the exchange fell two percent.  But on Monday, the Dow plunged 13 percent.  "So when the market opened on  Black Tuesday," said Woodward, "they say that the opening bell couldn't even be heard over 'Sell!  Sell!  Sell!' shouting.  Everybody was selling.  It was panic."

The market fell another 12 percent that day.  But it didn't bottom out until three years later, in the depths of the Depression.  In 1932, the Dow hit an astonishing all-time low of 41.  Even with the recovery aided by World War II, the Dow would not regain its pre-crash high until Nov. 23, 1954.

At the same time millionaires who waited too late to get out became instant paupers and were jumping out of skyscraper windows, and millions more were standing in bread lines, USC history professor Lauren Sklaroff said a few Americans were completely untouched by the crash and its results.  "There were some people who continued on, their companies were able to stay afloat.  They had saved enough money that they were able to rely on that if profits fell, and they had been very saavy about how they were preserving their own captital before the crash.  But for a lot of Americans, of course, that wan't the case...people who were renting were often evicted from their property, and people who were owning, turned into renters."

Politically, too, people were frustrated with the policies of President Herbert Hoover, which led to the election of Franklin Roosevelt, who would establish the New Deal that helped lift the country out of the Depression's depths and put many people back to work with programs like the Works Progress Administration, the National Recovery Act and the Tennesee Valley Authority. 

"A lot of what we know about the Great Depression is in hindsight," said Woodward, adding that economists should have seen the crash coming "because it was unsustainable for the stock market to grow at such a faster rate in terms of valuation than the 'real' economy's ability to support it.  I think now we can see that better, and we've got better data. We did learn a lot as a result of this."

The biggest lesson to be learned from the crash, said Woodward, was "never get overconfident.  When there's overconfidence, too much optimism, if it seems too good to be true, it probably is."