ABSTRACT

Rarely does an economic crisis scar the minds of people for life, but the Great Depression is the exception. Many years after the event, even when many ordinary people had become millionaires, they remained frugal in their lifestyles. Fear of another depression burnt the importance of thrift into their mindsets. Given the magnitude of the disaster, and its long aftermath, it should not come as a surprise that governments introduced regulatory changes in the 1930s that were aimed at reducing speculative tendencies within the economic and investment arenas. The financial sector was a major target, as it significantly fuelled the boom of the 1920s, as was the stock broking fraternity that fostered ‘buying on margin’. Nevertheless, it was the individual speculator’s greed that drove the quest for quick capital gains, rather than medium term dividends, and so the speculator could accept a major slice of the blame for the economic and social crisis that ensued. What were causes of the Great Depression? How important were speculative forces in this crash? What lessons have we learnt? Could history repeat itself? This chapter examines these questions in the light of the recent boom in US stocks prices. Of particular interest is the degree to which speculative forces overshadowed real economy-wide forces in driving the crash of 1929.