The Economic Impact of the Stock Market Boom and Crash of 1929

In a recent issue of Newsweek three eminent economists were asked: "John Kenneth Galbraith has said that we are reliving the dismal history of 1929. Do you think the stock market will keep falling? If it does, will there be another Great Depression?" They replied in the following ways: Henry Wallich: After 1929, the Dow Jones industrial average dropped by about 90 percent. I see nothing of that sort ahead. And even if the stock market suffered further reverses, the economy still would not be decisively affected. Milton Friedman: The stock crash in 1929 was a momentous event, but it did not produce the Great Depression and it was not a major factor in the Depression's severity .... Whatever happens to the stock market, it cannot lead to a great depression unless it produces or is accompanied by a monetary collapse. Paul Samuelson: In our economy, the market is the tail-and the tail does not wag the dog, which is gross national product. The decline has cut a quarter of a trillion dollars from people's net worth and that will be a depressant, but not a major one, on consumption and investment spending. A week later Professor Galbraith replied sharply that "The 1929 crash had a deeply depressing effect on consumer spending, business investment and overseas lending and it disrupted the international trade and monetary system. From the evidence, it was an important factor in the depression that ensued. ''/