Economic Disasters of the Twentieth Century

Economic Disasters of the Twentieth Century

Edited by Michael J. Oliver and Derek H. Aldcroft

The First and Second World Wars, the great depression, oil shocks, inflation, financial crises, stock market crashes, the collapse of the Soviet command economy and Third World disasters are discussed in this comprehensive book. The contributors subject these disasters to in-depth assessment, carefully considering their costs and impact on specific countries and regions, as well as assessing them in a global context. The book examines the legacy of economic disasters and asks whether economic disasters are avoidable or whether policymakers can learn from their mistakes.

Chapter 7: Stock Market Crashes

Geoffrey E. Wood

Subjects: economics and finance, economic psychology, financial economics and regulation, money and banking

Extract

Geoffrey E. Wood1 There is, unsurprisingly, no formal, rigorous definition of what comprises a stock market crash, as opposed to a fall, decline, or, to borrow a broker’s term, correction. The fall in stock prices in the United States in 1929 is regarded universally as a crash, but it owes this to the vividness of J.K. Galbraith’s writing and to his choosing of book titles – his 1955 book was called the The Great Crash. Because that stock market fall was so large, and because of its dramatic economic aftermath, that episode will undoubtedly figure in this chapter. It will, indeed, be a core episode, as the period has been thoroughly studied, and thus provides a good basis to evaluate the connection between market crashes and the subsequent behaviour of the economy. Of course there have been, as goes without saying so far as readers of the financial pages are concerned, other sharp market falls. Those examined here, in addition to 1929 in the United States, are London in 1914, the behaviour of the London market over the period 1929–31 and East Asia in 1999/2000. 1940 and 1974 in London are also touched on, but only briefly. The aim, in other words, is not to be comprehensive – impossible in the absence of agreement about what comprises a ‘crash’ – but rather to focus on some major individual episodes that will help clarify the extent to which and way in which stock market crashes are ‘economic disasters’. The structure...

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