The Roaring Twenties Fuel a Stock Market Boom on Borrowed Money
The Dow rises sixfold in eight years as ordinary buyers borrow 90 cents of every dollar they put into stocks
Quick facts
- Dow, August 1921
- 63
- Dow peak
- 381.17, September 3, 1929
- Typical margin down payment
- About 10 percent of the price
- Fed response
- Raised interest rates in 1928 and 1929 to limit speculation
What happened
The economic expansion of the 1920s reached its loudest on the New York Stock Exchange. The Dow Jones Industrial Average climbed from 63 in August 1921 to 381 by September 3, 1929, a sixfold rise in eight years. Automobiles, telephones, and radios spread through American homes, and a new industry of brokerage houses, investment trusts, and margin accounts let ordinary people buy shares with borrowed funds. A typical buyer put down about 10 percent of a stock's price and borrowed the rest, using the shares themselves as collateral. Borrowed money poured into the market and prices soared. In 1929 the economist Irving Fisher declared that stock prices had reached what looked like a permanently high plateau.
Why it matters
The speculative rise of the late 1920s left the market resting on a wall of debt. Because buyers had borrowed against the stocks they held, a fall in prices could force them to sell to cover their loans, which drove prices down further in a self-feeding spiral. That leverage turned an ordinary market correction into a collapse when confidence broke in October 1929, and it is one reason the Federal Reserve had spent 1928 and 1929 raising interest rates to try to cool the speculation.
How we know
Daily Dow Jones closing prices for 1920 through 1954 are preserved in Federal Reserve economic data, and the mechanics of margin buying are documented in the Federal Reserve History account of the 1929 crash drawing on the records of the Federal Reserve Board and reserve banks.
Sources
- Federal Reserve History (Gary Richardson, Alejandro Komai, Michael Gou, and Daniel Park). Stock Market Crash of 1929 · Reputable sourcefederalreservehistory.org · The domain "federalreservehistory.org" is on our Reputable source registry. · Link is live and its text matches the event's key terms (Jul 2026)
- Library of Congress. The Great Depression and World War II, 1929 to 1945: Overview · Primary sourceloc.gov · The domain "loc.gov" is on our Primary source registry. · Link is live and its text matches the event's key terms (Jul 2026)
See something wrong? . Corrections with a source get fixed fastest.
Part of a timelineThe Great Depression20 events · The longest and deepest downturn in the history of the modern industrial economy, from a stock market that lost 89 percent of its value to breadlines that ran for a decadeView all →