An Online Professional Development Seminar
Edward J. Balleisen
Associate Professor of History
Duke University
National Humanities Center Fellow
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The Crash of 1929
GOALS
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To analyze the immediate reactions to, and proximate and
deeper causes of, the 1929 stock market crash.
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To consider the 1929 crash in light of the earlier regular
occurrence of financial panics, the subsequent history of
comparative financial stability, and the more recent return to
financial instability.
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To suggest some teaching strategies for integrating textual
and visual primary documents with quantitative evidence.
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The Crash of 1929
FROM THE FORUM
Challenges, Issues, Questions
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How did the Crash come about?
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How did it affect the lives of ordinary Americans?
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How did the Crash affect the global economy?
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How does the Crash relate to the Great Depression?
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How does the Crash of 1929 compare to the Great Recession of 2008-11?
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Will we ever learn?
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The Crash of 1929
Framing Questions
or
Questions to Pose to Students before Viewing The Crash of 1929
Just how broad was the class of investors in the 1920s? How powerfully did speculation reshape
popular culture?
What prompted the boom in stocks during the 1920s? How did the pervasive use of leverage
(investments based on debt) accentuate the upswing and the eventual collapse?
What impact did the dramatic growth of modern consumer credit have on the 1920s boom as
well the impact of the stock market crash on the wider economy?
What accounted for the extraordinary confidence that economists and many politicians placed in
American economic institutions and financial markets before, and even after, 1929?
How did Americans initially respond to the 1929 Crash – personally, culturally, and politically?
How does the crash of 1929 compare to earlier financial panics?
Why did financial panics not recur in America during the several decades following World War II?
How, if at all, do the events of the last few years place the Great Crash in a new analytical light?
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Edward J. Balleisen
Associate Professor of History
Duke University
National Humanities Center Fellow
2009-10
Legal History
Politics, Public Life and Governance
Government and Markets: Toward a New
Theory of Regulation (ed.) (2010)
Navigating Failure: Bankruptcy and
Commercial Society in Antebellum America
(2001)
Suckers, Swindlers, and an Ambivalent State:
A History of Business Fraud in America
(Forthcoming)
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Part 1: Emotional Response to Crisis
The Crash in Numbers
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Part 1: Emotional Response to Crisis
The Imperative of
Maintaining Confidence
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Part 1: Emotional Response to Crisis
The Imperative of
Maintaining Confidence
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Part 1: Emotional Response to Crisis
Personal Implications of the Crash
From the interview with Arthur Robertson
in Hard Times:
“On Wall Street, the people walked
around like zombies. It was like Death
Takes a Holiday. It was very dark. You
saw people who yesterday rode around in
Cadillacs lucky now to have carfare.”
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Part 1: Emotional Response to Crisis
Personal Implications of the Crash
From the interview with Arthur Robertson in Hard Times:
“In the early Thirties, I was known as a scavenger.
I used to buy broken-down businesses that banks
took over. That was one of my eras of prosperity.
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Part 1: Emotional Response to Crisis
Extent of Stock Ownership
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Part 1: Emotional Response to Crisis
The Depth of Denial
From the New York Sun:
“The Depression in Wall Street will
effect general prosperity only to the
extent that the individual buying power
of some stock speculators is impaired.”
“No Iowa farmer will tear up his mailorder blank because Sears-Roebuck
has slumped. No Manhattan
housewife took the kettle off the
kitchen stove because Consolidated
Gas went down to 100. Nobody put
his car up for the winter because
General Motors sold 40 points below
the year’s high.”
Irving Fisher, Yale professor, in The
New York American:
“Relatively speaking, the 1929 stock
market has been stabilized at a high
lever, and judging by the underlying
conditions of business and industry, it
bids fair to remain so.
“After this experience the market
should be largely purged of weak
accounts. But unless I am wrong
about the factors underlying the
plateau to which the stock market has
risen, there will be further tendency to
rise rather than to fall as soon as the
present conditions are stabilized.”
“So long as American industry is on a
sound basis we shall have prosperity.”
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Part 1: Emotional Response to Crisis
The Moral Critique of Speculation
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Part 2: The Making of a Speculative Boom
From “Gasoline Alley,” December 5, 1928
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Part 2: The Making of a Speculative Boom
Chicago Tribune, March 11, 1928
Buying Orgy Again Thrills Wall Street
Pool Traps Short Interests.
If Wall Street had any information today as to
special developments affecting the Radio
corporation it was not divulged. The most likely
explanation of the rise, according to well
informed interests, is that a well-equipped pool
has trapped a large short interest and that the
speculative element has easily been led into
the market by the stock’s violent advances.
From “Gasoline Alley,” December 5, 1928
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Part 2: The Making of a Speculative Boom
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Part 2: The Risks of Speculating on Margin
Interview with John Hersch, senior partner,
Chicago investment house, from Hard
Times:
“When the break started, you had a deluge
of selling, from weakened margin
accounts. We had to stay up all night
figuring. We’d work till one o’clock and go
to the LaSalle Hotel and get up about five
and get some breakfast and continue
figuring margin accounts. ‘Cause
everybody was in trouble. But everybody”
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Part 2: The Limits of Stock Ownership
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Part 3: Structural Causes: The Credit Economy
The New Consumer Economy
and the Engine of Debt
This Installment Stuff
Smith: Are you getting a new
car this year?
Jones: Yes. That is, as soon
as I’ve paid for the
one that I had before
the one I’ve got now.
From Life (1883-1936), February 15, 1929.
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Part 3: Structural Causes: The Credit Economy
From Middletown: A Study in Contemporary American Culture,
Robert S. Lynd and Helen Merrell Lynd, 1929.
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Part 3: Structural Causes: The Credit Economy
The Rapid Expansion of Private Debt
Total Farm Debt
Total Consumer debt
1919 -- $43.9 billion
1919 -- $2.6 billion
1925 -- $59.6 billion
1929 -- $6.3 billion
1929 -- $72.9 billion
1927: 15% of all consumer durables bought on installment payments
60% of automobiles bought on installment payments
80% of radios bought on installment payments
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Part 4: Structural Causes: Faith in Market Economy
Hedging Risk: The Wonder of Investment Trusts
From “This Era of Investment Trusts” by Irving Fisher, 1929
“The investment trust principle acts to reduce risk by utilizing the special knowledge
of expert investment counsel, and by diversifying investments among many kinds
of common and preferred stocks and bonds, foreign and domestic.
It also operates to shift risks from those who lack investment knowledge to those
who possess it. As a consequence normally speculative properties gravitate into
the hands of these skilled agencies which are better able to forecast their true
future value.”
. . .
“Many corps of specialists employed by the investment trusts are watching out for
these signs. They know about improved and cheapened processes beforehand,
and discount them in their purchase of stocks and bonds. By their influence, the
steeper declines or ascents are drawn into milder ones.”
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Part 4: Structural Causes: Faith in Market Economy
Spreading Risk: Consumer Lending across the Country
H.B. Lewis, Vice President, Chicago
Commercial Credit Company:
“It appears to me unthinkable that any ordinary
recession can affect the installment business.
The safeguards being taken to protect the
accounts are effective and, not only these, but
the tremendous geographical spread of
business are great strengthening factors.
Installment selling now covers this country and
Canada, and depression, considering the
present financial organization available to limit
the effect of panics, is not likely to cover the
entire country at once. There may of course be
“black spots” here and there that must needs be
taken into account, but these, according to past
experience, will not show up seriously when
taken in relation to conditions as a whole.”
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Part 4: Structural Causes: Faith in Market Economy
Political Satisfaction with American Prosperity of the 1920s
From “Rugged Individualism Speech,” Herbert Hoover, October 22, 1928
“By adherence to these principles of decentralization, self-government,
ordered liberty, and opportunity and freedom to the individual our American
experiment has yielded a degree of well-being unparalleled in all the world.
It has come nearer to the abolition of fear and want than humanity has ever
reached before. Progress of the past seven years is the proof of it. It
furnishes an answer to those who would ask us to abandon the system by
which this has been accomplished.”
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Part 5: The Great Crash in Long-Term Historical Perspective
Looking Back: Major Financial Panics, 1800-1940
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Part 5: The Great Crash in Long-Term Historical Perspective
Bank Failures, Regulation, and Inequality in the United States
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Part 5: The Great Crash in Long-Term Historical Perspective
Inequality and Instability: Correlation = Causation?
 Widening inequality and propensity to speculate.
 Widening inequality, keeping up with the Jones, and
willingness to borrow for consumption.
 Widening inequality and supply of consumer credit.
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Part 5: The Great Crash in Long-Term Historical Perspective
Regulation and Stability: Correlation = Causation?
Interview with John Hersch, senior partner, Chicago investment house, from Hard Times:
“You had no government control of margins, so people could buy on a shoestring. And
when they began pulling the plug . . . You had a deluge of weakness. You also had short
selling and a lack of rules. There were many cases of staid, reputable bankers making
securities available on special deals—below the market price—for their friends. Anything
went, and everything did go.
Today, there are very few bankers of any repute who have objected to the Securities
Exchange Commission. They believe that the regulation in 1933 was a very, very sound
thing for business.
In ’32 and ’33, there was no securities business to speak of. We played a lot of bridge in
the afternoons on LaSalle Street. There was nobody to call or see. It was so quiet you
could hear a certificate drop.”
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The Crash of 1929
Final slide.
Thank You
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