Was the Stock Market Too High?
"However, contemporary and historical accounts have failed to find even a smoking gun, let alone a culprit."
Rappoport and White ( 1993, p. 570)
On Black Thursday, October 24, 1929, the stock market ( New York Stock Exchange) fell 34 points, a 9 percent drop for the day. The trading volume was approximately three times the normal daily volume for the first nine months of the year. There was a selling panic. But the series of events leading to the crash actually started before that date.
It is important that we more fully understand the causes of the 1929 stock market crash and correct some of the widely held misconceptions. If stock prices were too high because of speculative buying, and the crash was inevitable, then the lesson to be preached is simple, if not easily executed. One should not invest in stocks if stock prices are too high. The conventional wisdom is that speculation was the cause of stock prices being too high. Thus Malkiel ( 1996) writes (p. 51) about a speculative boom:
Perhaps the best summary of the debacle was given by Variety, the show-business weekly, which headlined the story, "Wall Street Lays an Egg." The speculative boom was dead and bil-