Understanding the Forgotten: Part 1

“Part 1 define and deeply analyse history’s crises, through comparing and contrasting key issues and ascertaining if there indeed is a case for the GFC being unique.”

From the onset, we must define what it means for something to be unique. Oxford Dictionary defines unique as ‘Being the only one of its kind; unlike anything else’ (1). The seminal dates of the Great Crash occurred during 28th – 29th October 1929, known as Black Monday and Black Tuesday respectively. The Great Depression immediately ensued from The Great Crash through to the year 1939 (Richardson et al. 2013) (2).

Chart 1: The Dow Jones Industrial Average Index (DJIA), 1918-1940

Ref.1 DJIA 1918-1940

Chart 1 (Macrotrends 2018) (3); vertical axis indicates the $USD nominal values rebased for October 1915=100 of the DJIA stock market index between the years 1918 to 1940. The 1920’s was a period referred to as the ‘Roaring 20’s’, from the evident stock market boom at its peak of 380.33 in August 1929.

The period during 1929-1933 witnessed almost 6,000 commercial bank suspensions, and over one million dollars (USD $18.5M, 2016) in losses borne by commercial bank depositors (FDIC 2005) (4). John Maynard Keynes and his contemporaries believed that the Federal Reserve did all it could through its stimulative policies to reduce the severity of such a tumultuousness event. Peter Temin concluded that before the money supply fell, prices were already falling (Kindleberger & Aliber 2011) (5). Monetarists, on the other hand, refer to Milton Friedman and Anna Schwartz, who point out that indeed the monetary authorities acted in a manner inconsistent with their purpose of injecting liquidity in the banking system in times of crisis. This, being their responsibility as per the Federal Reserve Act of 1913. Friedman continues, indicating how the US monetary authorities allowed the monetary base to shrink, leading to the quantity of money to decline by one third over 1929-1933 (Friedman 1968) (6).

Kindleberger & Aliber (2011) (5) connect the similar features between the 1882 French Bank Crisis and the Crash of 1929 with the expansion in the use of, and speculation in call money. The high leverage in margin credit meant buyers of stocks were required by brokerage firms to provide a 10 percent down with the remaining 90 percent borrowed. From end of 1926 to early October 1929 the volume of call loans had risen by 220%. The warning signs were echoed in the market when in February 1929, Paul Warburg one of the founders of the Federal Reserve Bank System, made an address saying; US stock prices were too high likening the situation to the 1907 Bankers’ Panic. Additionally, the then Chairman of the Federal Reserve Board made a similar statement (Kindleberger & Aliber 2011, p.89) (5). Their statements however, could not stop the impending Great Crash, as presented by Chart 1; stock prices continued trending upward till August 1929.

← Intro          Part 2 →


(1) Oxford Dictionaries 2016, Oxford University Press <http://www.oxforddictionaries.com/definition/english/unique&gt;.

(2) Richardson, G., Komai, A., Gou, M., Park, D. 2013, ‘Stock Market Crash of 1929’, Federal Reserve History, <http://www.federalreservehistory.org/Events/DetailView/74&gt;.

(3) Macrotrends 2018, Dow Jones Industrial Average Index 1918-1940 <http://www.macrotrends.net/1319/dow-jones-100-year-historical-chart&gt;.

(4) Federal Deposit Insurance Corporation 2005, Federal Deposit Insurance Corporation: The First Fifty Years, <https://www.fdic.gov/bank/historical/managing/chron/pre-fdic/&gt;.

(5) Kindleberger, C. & Aliber, R. 2011, Manias, Panics & Crashes A History of Financial Crisis, 6th edn, Palgrave Macmillan, Basingstoke, Hampshire, pp. 79-89.

(6) Friedman, M. 1968, ‘The Role of Monetary Policy’, American Economic Review, vol. 58, no. 1, pp. 3.


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