Shortly after noon on Thursday 24 October 1929, Richard Whitney, vice-president of the New York Stock Exchange, strode across the trading floor to the post where US Steel traded and loudly bid 205 for ten thousand shares — comfortably above the last sale. The theatrical order, placed on behalf of a hastily assembled pool of bankers, was meant to stop a rout. All morning the ticker had been running hours late, prices had been falling into a void with no bids at all, and crowds had gathered in the street outside to watch the panic as if it were a fire. The bankers' gesture steadied the market — for roughly two trading days. Among the spectators in the visitors' gallery that day, by pure chance, was Winston Churchill. Black Thursday, it turned out, was only the overture.
The great bull market of the 1920s had been built first on real prosperity — cars, radio, electrification — and then, increasingly, on borrowed money. Investors bought shares "on margin", putting down only a fraction of the price, and brokers' loans swelled to vast size as even the cautious were drawn in. Warnings were unwelcome: when the forecaster Roger Babson predicted a crash in September 1929 the market wobbled and recovered, and America's most celebrated economist, Irving Fisher of Yale, declared in mid-October that stocks had reached "what looks like a permanently high plateau". A famous story has Joseph Kennedy deciding to sell out after a shoeshine boy offered him stock tips — probably polished after the fact, but it captures the late-boom mood perfectly. The Dow Jones Industrial Average had already peaked at 381 on 3 September. It would not see that height again for a quarter of a century.
The real slaughter came the following week. On Monday 28 October the Dow fell nearly 13 per cent; on Black Tuesday, 29 October, it dropped almost 12 per cent more on roughly sixteen million shares — a volume record that stood for nearly four decades. This time no bankers' pool rode to the rescue; the showbusiness paper Variety summed up the week with its immortal front-page headline, "Wall St. Lays an Egg". One durable legend deserves correction here: ruined speculators did not rain from Wall Street's windows. Later studies, including Galbraith's own, found no jump in suicides during the crash weeks; the image grew out of gallows humour, a handful of conspicuous cases and energetic myth-making.
The bezzle
The crash's sharpest chronicler arrived a generation later. In The Great Crash, 1929, published in 1955, the economist J. K. Galbraith coined the word "bezzle" for the inventory of undiscovered embezzlement in an economy. In boom times the bezzle grows: the thief has the money, the victim does not yet know it is gone, and so the country briefly feels richer than it really is. Slumps are when the books get checked. The 1930s duly exposed spectacular frauds, from Ivar Kreuger's match empire to the collapsing utility pyramids of Samuel Insull. The most poetic case came later still: Richard Whitney himself — hero of Black Thursday and five times president of the Exchange — went to Sing Sing prison in 1938 for embezzlement.
Did the crash cause the Depression?
The tidy story — crash, therefore Depression — does not survive scrutiny, and even Galbraith declined to tell it that way. Share ownership was too narrow for paper losses alone to flatten the world's largest economy. What converted a recession into the Great Depression was the machinery that failed afterwards: waves of American bank failures from 1930 onwards; a Federal Reserve that allowed the money supply to shrink by roughly a third, the charge pressed by Milton Friedman and Anna Schwartz; a gold standard that transmitted deflation from country to country like a virus; and the Smoot–Hawley tariff of 1930, which helped strangle world trade. The Dow finally bottomed at 41 in July 1932, down nearly 90 per cent from its peak, and only regained its 1929 high in November 1954.
The wreckage rebuilt American finance. The Senate's Pecora hearings paraded Wall Street's sins before the public; the Glass–Steagall Act of 1933 separated commercial from investment banking; and the Securities and Exchange Commission was created in 1934, with the speculator Joseph P. Kennedy — father of the future president — installed as its poacher-turned-gamekeeper first chairman. Nearly a century on, the Great Crash remains finance's central morality tale, and its lesson is Galbraith's rather than the ticker's: the bezzle is always out there, growing quietly through every boom. The crash is merely the audit.
Quiz nuggets
- Black Thursday fell on 24 October 1929; Black Tuesday, 29 October, saw roughly sixteen million shares traded — a record for almost forty years.
- Days before the crash, Yale economist Irving Fisher said stocks had reached "what looks like a permanently high plateau".
- The Dow peaked at 381 in September 1929, bottomed at 41 in July 1932, and only regained its peak in November 1954.
- J. K. Galbraith coined "the bezzle" — undiscovered embezzlement — in The Great Crash, 1929, published in 1955.
- Richard Whitney, who placed the bankers' rescue bid on Black Thursday, was later jailed for embezzlement.