Discriminating Between Tariff Bill-Based Theories of the Stock Market Crash of 1929 Using Event Study Data

Authors

  • Bernard C. Beaudreau Universite Laval

Abstract

Jude Wanniski (1978) argued that the Smoot-Hawley Tariff Bill was a key factor in the Stock Market Crash of October 1929 and the Great Depression. The specter of higher tariffs and lower foreign trade, he argued, depressed share prices, leading ultimately to the Stock Market Crash. Bernard Beaudreau (1996, 2005), on the other hand, made the reverse argument, namely that the specter of higher tariffs from November 1928 to October 1929 fueled the Stock Market Boom as investors anticipated higher revenues and profits from the anticipated increase in sales and revenues. The Stock Market Crash, he argued, came on the heels of the defeat of the Thomas Recommittal Plan which foretold of lower, not higher as Wanniski contended, tariffs on manufactures. Using Event Study data from January 14, 1929 to October 29, 1929, this paper attempts to discriminate between these two hypotheses. The results show that “good” tariff bill news as reported in the New York Times contributed to stock price appreciation, and vice-versa, supporting the latter theory.

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