Economic history · The Great Depression
Six steps, about nine minutes, a question at each. You need no economics and no preparation, only a willingness to guess before you are told.
Almost every account of the Great Depression starts with the Wall Street crash of October 1929, when share prices collapsed in a few days.
The boom before it was bought with borrowed money, America's central bank had been raising interest rates since 1928 to stop that borrowing, and the American economy had already stopped growing in August, two months before the crash. It then went on shrinking for years on end, and unemployment rose to the worst level of the century.
Six steps cover the boom, the borrowing behind it, the two days themselves, and the long fall that followed.
What this module covers
Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.
Step 1 of 6
The crash is the famous part of this story. The part that is not famous is that a great many of the buyers had borrowed the money they were buying with.
American prices rose through the 1920s, and on 3 September 1929 the average of them reached about 381, the highest it had ever been.
A buyer who borrowed most of the price owes that money whatever the share turns out to be worth. When prices fall the lender asks for the money back. To find it, the buyer sells shares. Selling pushes prices down again, and the next lender then asks the next buyer, so the falling feeds itself.
Many of those shares were not paid for in full: a buyer put down a small part of the price and borrowed the rest.
Ordinary people were buying shares that way in the 1920s, and not only people who could pay the whole price.
Borrowing to buy costs the buyer very little while prices are rising, because the share can be sold for more than was borrowed against it.
Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.
Shares were often bought with a small payment down and the rest borrowed. What does a falling share price do to that buyer?
For scale. Shares were being bought with a small part of the price paid and the rest borrowed.
The Federal Reserve, America's , raised the American in 1928 and 1929, before the crash.
The interest rate the Federal Reserve sets acts as a floor under the interest rates paid on other loans in the country.
Farms, factories and households all paid for it, because a higher interest rate reaches every person who borrows.
Tighter money therefore reached the whole economy, and not only the one market it was aimed at.
The Federal Reserve raised interest rates in 1928 and 1929. What was it trying to stop?
For scale. Share prices went on rising anyway, and reached their highest point in September 1929.
The American economy stopped growing in August 1929, two months before the Wall Street crash.
The crash happened in a few days, in one place, to people whose names were known. It made photographs and headlines. The fall in the wider economy had started two months earlier and it went on for years, and a thing that happens slowly to every person is harder to point at than a thing that happens quickly to a few.
Stopped growing means the country stopped producing more than it had the year before and began producing less. The Wall Street crash was the days in October 1929 when share prices collapsed.
The peak of the American economy is dated to August 1929, and the fall in factory production is dated from the same month.
The crash happened in a few days, in one place, to people whose names were known, and the fall in the wider economy had already begun.
Put these four things in the order they happened.
For scale. Every American rise and fall in the economy since 1854 has been dated the same way.
Share prices collapsed on two days in October 1929 that are still named: Black Thursday, the 24th, and Black Tuesday, the 29th.
Sellers on both days had almost no buyers to sell to, so prices fell as far as they had to fall to find anyone at all.
Prices went on falling long after October, and the fall did not stop until 1932.
Anybody who had borrowed to buy now owed more than the shares were worth. The crash on its own is not what caused the Great Depression, and it was not nothing either.
About sixteen million shares changed hands on Black Tuesday. Prices went on falling until 1932. How far below its peak was the market at the bottom?
For scale. Share prices had reached their highest point ever seven weeks earlier, on 3 September 1929.
The American economy started shrinking in August 1929 and did not grow again for years.
A stretch of months when the economy shrinks is a . Most last under a year, and most people who live through one keep their jobs.
Every American rise and fall since 1854 has been dated, and no other fall in the record comes close to this one.
Savings can carry a family through one bad year. The length is what separates the Great Depression from an ordinary bad patch.
Most American falls in the economy last under a year. How many months did this one run?
For scale. The fall that followed, in 1937 and 1938, ran 13 months.
American rose from 3.2 per cent of workers in 1929 to its worst level of the century by 1933.
No government body did, at the time. There was no monthly survey of who had work and who did not. The figures used today were worked out afterwards, from other records, and the Bureau of Labor Statistics, the government office that counts American jobs, did that work later. That is why two sources can give slightly different numbers for the same year.
The unemployment rate counts every person who wants paid work and has none, as a share of all the people who want it.
The unemployment rate in 1929 was 3.2 per cent. The figures for the years after it were built later, by the Bureau of Labor Statistics, from records kept for other purposes.
At 3.2 per cent, having no job was bad luck. By 1933 it had stopped being bad luck.
Out of every 100 American workers in 1933, how many had no job?
For scale. In 1929, before the fall, the unemployment rate was 3.2 per cent.
Module 1 of 7 in The Great Depression
The peak on the Dow
about 381 on 3 September 1929, bought partly on borrowed moneyWhen interest rates were raised
1928 and 1929, before the crashWhen the economy stopped growing
August 1929, two months before the crashThe two named days
24 and 29 October 1929, and about 90% gone by the 1932 lowHow long the fall lasted
43 months, to March 1933, 1929 and 1933
3.2%, then 24.9%You met six terms in this module
, , , , ,
Savings can carry a family through one bad year. Ten years of it starts with the banks.
[1] The boom, the tightening, and how much the crash mattered: Federal Reserve History, Stock Market Crash of 1929 and The Great Depression. On the boom: margin accounts let ordinary people buy shares with borrowed funds. On policy: "the Fed's decision to raise interest rates in 1928 and 1929. The Fed did this in an attempt to limit speculation in securities markets." On weight: the crash's impact faded within a few months, and trouble in another part of the financial system is what turned the fall into the longest depression on record. The essay records Allan Meltzer, a historian of the Federal Reserve, calling the crash a symptom rather than a force.
[2] The peak, the day itself, and the fall to 1932: Economic History Association, An Overview of the Great Depression, and Bierman, The 1929 Stock Market Crash. Bierman gives the record high as 381.2 on 3 September 1929, 16,410,030 shares traded on 29 October, and stocks down nearly 90 per cent by 1932. Parker's overview dates the fall in factory production from August 1929, says economists know the crash and the Depression were not the same event, and adds that there is no doubt the crash was one of the things that got the ball rolling.
[3] When the fall started and stopped, and how the crash reached the shops: National Bureau of Economic Research, US Business Cycle Expansions and Contractions, and Romer, The Great Crash and the Onset of the Great Depression. The NBER dates the peak of the American economy at August 1929 and the trough at March 1933, a fall of 43 months. The next one runs May 1937 to June 1938, 13 months, and no later fall in the table comes close to the first. Romer's paper sizes the crash's effect through households: the crash left people uncertain about their future income, and they cut their buying of expensive, long-lasting goods.
[4] The two named days: Library of Congress, Stock Market Panics, US History Primary Source Timeline. The guide names Black Thursday, 24 October 1929, and Black Tuesday, 29 October 1929, and records some 16 million shares changing hands. The FDR Presidential Library puts the 16 million on the 24th instead; three institutions put it on the 29th, and the 29th is the day printed here.
[5] The record high, and what the crash did not do: Herbert Hoover Presidential Library and Museum, The Great Depression. "At its peak on September 3, 1929, the Dow hit 381.17", plus the exhibit's account of shares bought on credit and its record of the market's bottom at 41.2. It also states that while the market crash did not cause the Great Depression, it was a factor.
[6] The government's own words on the crash: US National Archives, The Unwritten Record, Black Tuesday. "While the crash alone did not cause the Great Depression" is the American government's own record office stating the central claim in its own words, and it is one of four institutions that state both halves of it.
[7] What happened to jobs: Congressional Research Service, Labor Market Data: Great Depression vs. Recent Recession, R40655. The unemployment rate rose from 3.2% in 1929 to 24.9% in 1933. The report notes that the 1930s figures are estimates made afterwards, built so that they can be compared with the survey used today.
[8] What the fall looked like inside one firm: US Department of Labor, History, Chapter 5: Americans in Depression and War. The chapter records United States Steel employing 224,980 full-time workers in 1929 and none at all on 1 April 1933, which is what a collapse looked like inside one company. It also records that the Bureau of Labor Statistics built the 1930s unemployment figures afterwards, from records kept for other purposes.
Country data from the World Bank (CC BY 4.0) and the UNDP Human Development Report (CC BY 3.0 IGO)
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