The 1929 crash
After years of rising prices and more and more buying on credit, the American stock market crashed in October 1929. By the low in 1932 it had lost about ninety percent.
In the 1920s American share prices rose strongly year after year. In September 1929 the Dow Jones stood at around 380 points, about six times its level of August 1921 (around 63 points). A growing share of purchases ran on credit, and buyers often only had to put up ten percent themselves.
In October 1929 the mood turned. Because so many had bought on credit, they had to put up more money or sell when prices fell. These forced sales pushed prices down further.
It wasn't over in October. By the low in July 1932 the Dow Jones had fallen to about 41 points, a drop of almost ninety percent. Only in November 1954, about twenty five years later, was it back at its 1929 level.
That number is uncomfortable, and it belongs here. Anyone who claims stocks are safe in the long run overlooks it. What's true is: broad diversification and long periods improve your chances. They don't give you a guarantee.
The crash was amplified by purchases on credit with very little of the buyers' own money. If you only pay ten percent yourself, even a small decline means you have to put up more money, and if you can't, you're sold out. The lesson Liquidation describes the same thing, just here for the whole market and with correspondingly greater force.
According to today's research, the decline lasted so long and went so deep until 1932 mainly because of what came afterwards: the central bank kept money tight, thousands of banks failed because there was no deposit insurance, and tariffs brought trade to a standstill. The crash triggered the Great Depression, but it wasn't its only cause.
How long recovery took depends on how you count. Without dividends it was about twenty five years. Include dividends and allow for prices falling in the 1930s (deflation), and it was much shorter, about seven and a half years. Both figures are right. The difference shows how strongly the way of counting shapes what we say about the past.
Summary
- Purchases on credit forced the sales that deepened the crash.
- The decline through 1932 was roughly ninety percent.
- Recovery time depends heavily on whether dividends and inflation are included.
Did you get it?
What role did debt financing play?
Those who had put in little of their own money had to top up or were force sold when prices fell, and that amplified the crash.
Was the crash the sole cause of the Depression?
No. Tight money from the central bank, bank failures and tariffs played a major part.
Why do different recovery times circulate?
Because they depend on whether dividends and the falling prices of the 1930s are included.
Sources and further reading
- Historical price series of the US stock market, and standard economic-history literature on the Great Depression.
- Federal Reserve History, essay on the stock market crash of 1929: Dow path from 1921 to 1954 and margin purchases with about 10 percent down. Retrieved October 9, 2026. View source ↗
- Federal Reserve History, essay on the Great Depression: collapse of the banking system, fall in the money supply and the role of the central bank. Retrieved October 9, 2026. View source ↗
Related
- Bull market, bear market, crash, bubbleStage 1
- LiquidationStage 3
- Why every bubble looks the sameMarket History