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Book Analysis: The Stock Market Crash of 1929

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“The crash of 1929 stands out in financial history like a lighted beacon on a hilltop warning of impending trouble”- Gordon V. Axon

In Gordon V. Axon’s book titled The Stock Market Crash of 1929, he recounts the historical and economic factors behind the late 1920’s financial slump, which had left roughly one-quarter of all Americans virtually penniless. This economic plummet had brought about a somber era filled with much misfortune and few provisions known as the Great Depression.

First, the starting point of such doom and gloom can best be understood by illustrating the exorbitant optimism in market conditions felt by the general public during the post-World War I industrial boom. It was around this time that the public “felt more prosperous and began to buy, as unemployment declined and the business outlook improved.” This had fueled an immense amount of demand in shares offered by companies highly regarded for their innovativeness. One example was General Motors (GM), whose shares rose by 50 percent in a few weeks. The next couple of years had consisted of a series of “booms and busts” in which any sudden rise in the markets would inevitably be followed up by a sharp dive. It was in the wake of this trading activity that the economy had turned down and dropped very sharply in the Depression of 1920-21. Subsequent economic drops occurred in 1924 and 1927. Unfortunately, “these declines were viewed as nothing much and were shrugged off both by business and the general public.” Such risk taking would press on to 1929; the year that speculative mania had reached its climax followed by “the most shocking financial event in the United States.”

Wall Street brokers were at the center of the frenzy as well, and their speculative activities hastened the pace of economic collapse. Around this time, “manipulation of prices by unscrupulous speculators was commonplace.” One example of such market gerrymandering includes a “so-called wash sale”; i.e. a “pump and dump” scheme. This entails the spread of hype in order to drive a stock’s price up. This is done in an effort to artificially “generate more buying, which in turn would drive up the price of a stock.” This problematic method played a pivotal role in the skyrocketing stock prices, which “had risen so high that, when the tide turned, nothing could stop the deluge of selling as small investors by the thousands were sold out by their brokers [due to margin calls].” Frequently this was done with the intention “to terrify the public into selling.” Huge losses experienced by speculators such as these had brought this disastrous this devastating economic crash (1929), ultimately resulting in the collapse of the banking system and worldwide economic depression.

Interesting enough, this book’s publication date, 1974, was the very same year that the US was in the midst of the worst bear market since the Great Depression. Such financial distress had been the result of the 1973 Arab oil embargo imposed in the aftermath of the Yom Kippur War. This had resulted in an oil crisis, which had brought oil prices up and supply down simultaneously. Much like the 1920s, many investors had been caught up in fads such as the “Nifty Fifty” followed by a beating in the bear market. Regardless, the damage done paled in comparison to that of 1929.

In light of such unfortunate economic times, Axon wonders if there could possibly be any future financial collapses that would rival that of the crash of 1929. Axon expresses the minimal chance of such a calamity repeating itself by way of stating, “a recurrence is hardly likely, but it is possible.” He expresses enormous optimism in economic conditions in this book, owing to the fact that it is now “far more prosperous than that of the 1920’s.” Regardless, he leaves us with a warning that risky speculative endeavors that could potentially impoverish the masses should be avoided.

Although bear markets still come and go (and we should expect that they always will), the market environment of today is completely different from 1929. We no longer have individual investors who are margined on a ten-to-one ratio. Brokers are now under much stronger regulation, thanks to legislation such as the Securities Act of 1934, and many investors now act with the guidance of a registered investment advisor like Index Fund Advisors, Inc. To summarize, The Stock Market Crash of 1929 provides a fascinating look at the conditions that allowed a financial disaster to occur, and it should be required knowledge for all investors.