Chapter 7: Stock Market Crashes
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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