Lesson 1 of 7
The record, in figures
Output, the money stock, the exchange and the banks between 1929 and 1933, each from a named published series, with the measurement problems stated.
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In one minute
- The NBER dates the contraction from a peak in August 1929 to a trough in March 1933: 43 months, the longest in its published record.
- The Federal Reserve index of industrial production stood at 114 in July 1929 and 54 in March 1933 on a 1935 to 1939 base, so it more than halved.
- Friedman and Schwartz report the stock of money falling 35.2 percent between 1929 and 1933, and the banking system closed entirely in the national holiday of March 1933.
Before any explanation, the record. Each figure below comes from a named published source, and the ones that are reconstructions rather than contemporaneous measurements are marked as such.
Industrial production at the start and the end
- July 1929114 index
- March 193354 index
Duration
The National Bureau of Economic Research dates the peak to August 1929 and the trough to March 1933, a contraction of 43 months. In the same published table the 1920 to 1921 contraction is 18 months and the 1937 to 1938 contraction is 13. Nothing else in the record from 1854 onward is longer than 43 months except the 65 months from October 1873.
Output
Bernanke's 1983 paper tabulates the Federal Reserve's seasonally adjusted index of industrial production monthly across the whole episode, sourced to the Federal Reserve Bulletin. The series begins his table at 114 in July 1929 and ends at 54 in March 1933.
The fall is not smooth. The index is at 100 by December 1929, 79 by December 1930, 66 by December 1931 and 53 in mid-1932, with a partial recovery in late 1932 that reverses in early 1933.
Money
Friedman and Schwartz report that the stock of money fell 35.2 percent between 1929 and 1933, and in their own tabulation that is by far the largest of the exceptions to the money stock's rising trend since 1867. The next largest they list is 5.1 percent, in 1920 to 1921.
They describe the sequence: an initial mild decline from 1929 to 1930, converted into a sharp decline by a wave of bank failures beginning in late 1930, which produced attempts by the public to convert deposits into currency and a scramble for liquidity by the banks, intensified after September 1931.
The exchange
Galbraith's account gives two days. On Thursday 24 October 1929, 12,894,650 shares changed hands. On Tuesday 29 October the recorded figure was 16,410,030 and the Times industrial averages fell 43 points, which he notes cancelled all the gains of the preceding twelve months.
He is also careful about what the crash was and was not: the market went on falling for more than two years after 1929, and the losses after November were the worst.
The banks
Bernanke's description of the same years is of waves of bank failures culminating in the shutdown of the banking system in March 1933, with exceptionally high rates of default and bankruptcy affecting every class of borrower except the federal government.
What to hold loosely
Series for these years were largely reconstructed after the fact by researchers rather than collected by statistical agencies at the time. Unemployment in particular has no single authoritative series for the early 1930s, which is why no unemployment figure is quoted in this lesson. Different reconstructions disagree, and any account resting on a specific figure inherits that disagreement.
Check yourself
How long was the contraction, on NBER dating?
- 18 months
- 43 months, from a peak in August 1929 to a trough in March 1933
- Ten years
Show the answer
Answer: B.
In the same published table the 1920 to 1921 contraction is 18 months and the 1937 to 1938 contraction is 13.What does the industrial production index show?
- A fall of 14 percent
- A fall from 114 in July 1929 to 54 in March 1933, on a base where 1935 to 1939 equals 100
- A fall to 54 percent of its 1929 level exactly
Show the answer
Answer: B.
An index is a level on a base, not a percentage. The two numbers support the statement that output more than halved.What do Friedman and Schwartz report about the stock of money?
- That it rose throughout
- That it fell 35.2 percent between 1929 and 1933, by far the largest such fall in their record since 1867
- That it fell 5.1 percent
Show the answer
Answer: B.
5.1 percent is the figure they give for 1920 to 1921, which is the next largest in the same table.Sources
- National Bureau of Economic Research, US business cycle expansions and contractions, the published table of reference dates, for the August 1929 peak, the March 1933 trough and the 43-month duration, and for the comparison durations. Business cycle data last updated 14 March 2023.
- Bernanke, 'Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression', National Bureau of Economic Research working paper 1054, January 1983, published in the American Economic Review in 1983, table 1, for the monthly Federal Reserve index of industrial production sourced to the Federal Reserve Bulletin, and the introduction for the waves of bank failures and the March 1933 shutdown.
- Friedman and Schwartz, 'Money and Business Cycles', Review of Economics and Statistics, 1963, reprinted in the National Bureau of Economic Research volume The State of Monetary Economics, 1965, for the 35.2 percent fall in the stock of money between 1929 and 1933, the table of major exceptions to its rising trend, and the sequence of bank failures and conversions of deposits into currency.
- Galbraith, The Great Crash, 1929, 1955, the chapters on the crash and on things becoming more serious, for the trading volumes of 24 and 29 October 1929, the 43-point fall in the Times industrial averages, and the observation that the market continued falling for more than two years.
What this leaves out
- This is a heterodox tradition. The mainstream account of the same phenomenon differs, and nothing here is a forecast or a view on any security.
- Series for this period were largely reconstructed after the fact rather than collected at the time, and different reconstructions disagree. No unemployment figure is quoted here for that reason.
- The production index values are read from a table compiled in 1983 from the Federal Reserve Bulletin, not from the Bulletin itself.
- This lesson reports figures and explains none of them. The explanations begin with the next lesson, and no account in this course is presented as established.