The Stock Market Crash of 1929

The stock market crash of 1929 proved to be a critical event in the history of the . Aside from World Wars I and II, perhaps no other event had such a profound effect on American society in the 20th century. It affected the availability of jobs, the pursuit of education, the American culture, and even entertainment. The Great Depression which followed the stock market crash led directly to the New Deal, a sweeping social welfare program which still exists, in a limited form, today. The ’29 crash affected economic theory for decades, as government economists attempted to ensure that the crash was never repeated. Unfortunately, the stock market took a deadly dive again in 1987, but, as Eugene White points out in “The Stock Market Boom and Crash of 1929 Revisited” in the Journal of Economic Perspective (1990, 4:67-84), the effects of the ‘80s crash were mitigated as a result of changes in U.S. economic policy.

However, in the larger scheme of things, it can be difficult to prevent future crashes without a clear understanding of how the ’29 crash occurred in the first place. Various theories have been proposed over the years, some with more credibility than others. A key debate that has emerged in recent times is whether the crash was caused by a so-called “bubble,” or whether it was the result of fundamental flaws within the system. White does an expert job in evaluating the two sides of the debate, showing the merits and mistakes of each competing point of view. Ultimately, White seems to side with the bubble theorists, but not before poking some holes in the theory. In this paper, we will explore the wisdom of White’s analysis, noting how the evidence appears to lend credence to his claims.