The Crash … and Beyond

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The Crash … and Beyond

It is common to think of the Roaring Twenties as a distinct period in history, bounded on one end by World War I (1914–18) and on the other by the stock market crash and the Great Depression (1929–41), the period of economic downturn and hardship when millions lost their life savings, their jobs, and the sense of security they had once known. The special nature of the 1920s, with its colorful characters, exciting developments and events, and entertaining fads and trends, makes it tempting to frame the decade in that way. It is more accurate, however, to recognize that many of the changes and circumstances of the 1920s were rooted in previous decades. Similarly, the shift to the grim days of the Depression was neither as unexpected, nor as sudden as it may seem. However few people saw the change coming and of those who did, most ignored it.

Even as enthusiastic investors were trading stocks at unprecedented rates, and a majority of the population assumed that the good times would go on forever, there were warning signs that this was not the case. Examples include the out-of-control speculation on the stock market, overproduction of goods, and

declines in construction. Of course, some parts of the economy, and some people, had been left out of the general prosperity of the 1920s from the beginning. But as the decade wore on, there were indications that even those who had benefited most from the strong economy would soon be in trouble. Many decades later, it is easy to say that these warnings should have been heeded. At the time, however, they were not so clear.

Optimism and bright predictions

Throughout the 1920s a pro-business atmosphere had dominated the United States, and the economy had flourished, with companies expanding, foreign trade thriving, and the stock market on the rise. When President Herbert Hoover (1874–1964; served 1929–33) took office in early 1929, he declared in his inaugural address, "I have no fears for the future of our country. It is bright with hope." By the end of the year, these words would ring hollow.

But Hoover was not the only one who felt optimistic. Others also predicted a continuation of business as usual. Alfred Sloan (1875–1966), president of General Motors, made his own pronouncement, as quoted in Nathan Miller's New World Coming: The 1920s and the Making of Modern America: "Personally, I believe it is going to be a very good year—I don't see how it could be otherwise."

The stock market craze

Before the 1920s few ordinary U.S. citizens had invested in the stock market, which was considered a pursuit for the wealthy. But the decade brought not only extra cash to many but also a get-rich-quick mentality, along with a close alliance between business and government that made all kinds of business activities seem more acceptable. Many more people, including some of modest income, were buying and selling stocks. There were not as many, though, as some accounts of the 1920s have suggested: of a total U.S. population of 120 million, only about 1.5 million were involved with the stock market. More significant was the way that the stock boom became a popular, well-received part of U.S. culture.

When an investor buys stock (also called shares) in a company, he or she provides it with money with which to operate. If the company does well and makes a profit, the investor receives a share of that money in the form of a dividend, and the stock he owns becomes more valuable. He can sell it for more than the purchase price. A rise in the price of a stock means that it has become more valuable, usually because the company has been successful or seems promising. If the stock price goes down, however, the investor may lose money if he sells (he may, of course, choose to hold on to the stock in the hope that its value will rise again). Many of the investors of the 1920s were indulging in speculation, which means that they were buying and selling stocks quickly to make fast profits.

Some of the people who were now investing in the stock market used their own savings, while others bought stocks through a kind of credit system called "on the margin." This meant that they paid a small amount, usually about 10 percent, of the price of the stock while the stockbroker (a person who is authorized to conduct stock sales) paid the rest. If stock prices rose, the investor could pay back the debt while also making a profit. If prices fell, however, he or she would have to pay back the full amount to the stockbroker right away. By late 1929 broker loans totaled close to $7 billion.

The prospect of easy money and instant wealth had great appeal during the 1920s. By the end of the decade, the New York Stock Exchange—the center for stock trading, located on Wall Street in New York City—was trading six to seven million shares (or stocks) per day, compared to a more normal rate of three to four million. The prices of stocks were far higher than their real value and out of proportion to the profit-making ability of the companies. Yet people continued to invest enthusiastically, believing that prices could rise indefinitely to make them richer and richer.

Most ignore warning signs

Even as stock prices and investor enthusiasm were rising at a frantic pace, there were indications that not all was well with the economy. According to Miller, "Despite the continuation of the era of wonderful nonsense, cracks in the nation's economic foundation were evident to those who looked closely."

Ever since the end of World War I, when the demand for farm products that the European conflict had brought came to an end, farmers had been suffering from hard times. There was a huge oversupply of food in the United States, and prices were dropping dramatically. For example, a bushel of wheat that had cost $2.57 in 1920 cost only $1.00 a year later. As the decade progressed, wheat prices fell even more, and the coal mining and textile (cloth) industries were also in trouble. Construction on new houses slowed drastically; in the short period between 1928 and 1929, the construction industry declined by $1 billion.

Wages were also in decline, which meant that more and more people were unable to keep up with their former pace of consumerism (the preoccupation with acquiring goods that had dominated much of the decade). Radios and other items stayed on store shelves, and cars gathered dust on dealership lots, while new production slowed down. Unemployment was on the rise, an especially troubling sign during a decade in which most people had been able to find work. In Europe, changes in monetary policies and political unrest created instability that sent ripples across the sea to the United States.

A few sharp observers were calling attention to these trends, such as financial adviser Roger Babson, who predicted, as quoted in Miller's book, that "sooner or later a crash is coming." A few big investors, including the very wealthy Joseph Kennedy (1888–1969), father of future president John F. Kennedy (1917–1963; served 1960–63), started selling off stocks. Even President Hoover knew the danger of the kind of out-of-control speculation that was taking place. His belief that government should allow business to manage its own affairs as much as possible, however, was so strong that he did little to interfere.

Two black days in October

From September to October of 1929, the stock market rose to incredible heights. The widespread belief that things could continue this way came to a screeching halt on October 24, a day that would always be known as Black Thursday. The day before, stock trading had been especially heavy. But even before the bell that traditionally opened the New York Stock Exchange stopped ringing that Thursday morning, prices

began to fall with stunning swiftness. The ticker tape (the ribbon-like paper in the telegraphic machine that printed information about stock prices) could not keep up with the pace of transactions as traders frantically bought and sold.

Brokers began calling in their loans, and investors who had bought on the margin could not pay back their debts. Disaster, or the fear that disaster was just around the corner, was in the air. Crowds gathered in New York City's financial district, and extra police were sent in to control them. Rumors flew, especially those claiming that bankrupt investors and desperate brokers were killing themselves by jumping off buildings. In fact, a workman seen on top of a Wall Street building was wrongly assumed to be on the verge of suicide.

A measure of calm was introduced in the early afternoon, when a group of prominent bankers pooled their resources and bought $40 million worth of blue-chip shares (reliably valuable shares in leading companies like General Motors and U.S. Steel). This helped to restore people's confidence in the market and to reduce the panic somewhat. The relief proved short-lived, though. On the following Tuesday, October 29, Black Tuesday, came an even worse crash. Orders to sell stocks flooded the stock market, but hardly anyone was buying. Not even the blue-chip stocks were being bought.

The Federal Reserve (the government agency that makes rules for the banking industry) called a hasty meeting but could not decide what to do. In only a few hours, stocks had lost about $10 million in value. More than sixteen million shares were sold during the day. Chaos reigned in and around the New York Stock Exchange as well as in 'brokers' offices and banks across the country. Banks had lent speculators money that they had in turn borrowed from corporations. The corporations were now demanding that the banks repay their loans, and the banks were quickly running out of the funds needed to do so. Those funds included the savings that people had entrusted to the banks, which were now being wiped out.

A downward spiral

Despite the drama, surprise, and shock of the October crash, the idea that it caused an instant plunge into the harsh conditions of the Great Depression is faulty. For a few months it was not at all clear how much impact the disaster would have on the wider economy. Meanwhile, financial and government leaders tried to figure out what to do. President Hoover called for calm and then stuck to his usual policy of politely requesting cooperation and voluntary action from the business world. He asked manufacturers to cut into their profits before making pay cuts or trimming jobs, and he urged state and local governments to start public works projects (such as the building of roads and parks) to put people to work. In a remark often attributed to Hoover, Vice President Charles Curtis (1860–1936), as quoted in Miller, declared that "Prosperity is just around the corner."

By the spring of 1930, however, there were more bad signs. A full-fledged economic depression had begun as wages were cut, workers were laid off from their jobs, and factories closed. This led to a drop in consumer spending. Farm prices fell, and a terrible drought in the midwestern and southern states ruined crops and livelihoods. More and more banks closed, with depositors losing all of their savings. By the end of the year, sixteen hundred banks had closed. According to Frederick Lewis Allen in his book Only Yesterday: An Informal History of the 1920s, "The grocer, the window-cleaner, and the seamstress had lost their capital. In every town there were families which had suddenly dropped from showy affluence into debt."

Following a slight, temporary improvement in the economy in early 1931, the economic decline continued. Influences from abroad were also having an impact. The 1930 passage of the Hawley-Smoot Tariff (a tax that foreign countries had to pay on goods they wanted to sell in the United States) led to a decline in products coming into the country, while the demand for U.S. goods and food overseas also slowed. The European economies were in trouble too. In fact they had been since the end of World War I. The European countries had borrowed money from the United States to pay for the war effort, but now they could not pay back those loans. These factors made the U.S. economic situation even worse. Although Hoover put most of the blame for the nation's troubles on outside influences, most analysts cite the weak links in the U.S. economy itself as the main cause.

The devastating impact of the Depression

As the Depression continued, it took a heavy toll on every aspect of the nation's life. Before it was over, unemployment would reach as high as seventeen million, or more than one quarter of the workforce; in some places, it would hit especially hard (such as Toledo, Ohio, where 80 percent were out of work). The overall national income would be slashed in half.

Worst of all, perhaps, was the impact of the Depression at the most personal level. Previously prosperous or comfortably well-off families were now broke. Men in business suits sold apples from carts on street corners. In contrast to the consumerism practiced during the Roaring Twenties, people had to save their pennies and do without not only luxuries, but also without necessities.

Lost-looking, weary faces were seen on the breadlines and in the soup kitchens (set up to provide the poor with food) in every city, and thousands of men and boys, as well as a few women, hopped freight trains to look for work or simply escape from the shame and harsh realities they faced at home. Farmers who were unable to pay back their debts watched their land, houses, and possessions being auctioned off.

Despite some gains made in the first decades of the twentieth century, African Americans had always been subject to discrimination and had always been at the bottom level of society. They suffered even more now. Their unemployment rate was four to six times higher than that of whites, as even the least desirable jobs were now often taken by white people.

Even with so many suffering, Hoover continued to do little to help. The United States did not yet have unemployment insurance, which provides income to those laid off from their jobs, and the president did not approve of giving direct aid to people who were out of work. He did, however, increase spending on public works, and he directed the Federal Farm Board to buy and store surplus food from farmers in order to keep prices stable. Hoover also gave a certain amount of government money to endangered banks, railroads, and insurance companies. He was hesitant, though, to put too much money into these efforts or to give them much time to take effect.

The Democrats choose Roosevelt

Members of the Democratic Party were in a relatively happy mood as they gathered in Chicago in June 1932 to choose a candidate for the November presidential election. After a whole decade of Republican dominance of the U.S. government, the Democrats now seemed to stand a very good chance of gaining power. They knew that the people of the United States were eager for change, and that much of the blame for the nation's woes was being cast on Hoover and his fellow Republicans.

Nine candidates vied for the nomination, which was eventually won by New York governor Franklin Delano Roosevelt (1882–1945; served 1933–45). He was a dynamic person who was widely respected for having used some effective measures to deal with the Depression in his own state. In accepting the nomination of his party, Roosevelt said, "I pledge you, I pledge myself to a new deal for the American people." (The phrase "new deal" would later be used as the name of the economic program that Roosevelt would put in place.) During the campaign, the Democrats avoided the issues that had divided people in previous years, especially that of Prohibition, the controversial ban on alcoholic beverages that had gone into effect at the beginning of the 1920s, and focused on the economy.

That summer, Hoover's reputation was damaged even more by his harsh treatment of World War I veterans who had marched to Washington, D.C., to demand early payment of a bonus promised for 1945. As many as twenty thousand men had gathered in the nation's capital. After Congress turned down their request, most of them left, but Hoover sent in the army to chase out the rest. There were many injuries, and two of the veterans were killed, creating much bad feeling.

The November 1932 election resulted in a resounding victory for Roosevelt. At his inauguration, broadcast into an estimated sixty million U.S. homes by radio, the new president assured U.S. citizens that "the only thing we have to fear is fear itself." He promised that his New Deal plan would put the nation back on track through such measures as public works projects for the unemployed, the stimulation of farm prices, loans to prevent foreclosures (when banks take possession of property due to failure to repay the debt), and new regulations to control banking and credit practices. The 1935 Social Security Act would ensure income for retired or disabled workers.

Franklin Delano Roosevelt: A Guiding Light through the Great Depression

Considered one of the greatest leaders in U.S. history, Franklin Delano Roosevelt became president at a time of extreme hardship and fear. Roosevelt's New Deal program and his own personal optimism gave many U.S. citizens renewed hope for the future.

Born in 1882, Roosevelt was educated in law but soon followed in the footsteps of his distant cousin, former president Theodore Roosevelt, and entered politics. In 1910 Franklin Roosevelt was elected to the New York state senate. Two years later, President Woodrow Wilson appointed Roosevelt assistant secretary to the navy. His success in the position led to his nomination as a vice presidential candidate in the 1920 election. Although the Democrats lost that election, Roosevelt gained much experience during the campaign.

One year later, Roosevelt contracted polio, a serious disease that causes paralysis. He lost the ability to move his legs and spent most of the rest of his life in a wheelchair, but he maintained a positive outlook and continued his political career, serving as governor of New York in 1929. The stock market crashed that year, and the Great Depression began. To counter New York's high unemployment rate, Roosevelt established a program of direct financial aid for workers who had lost their jobs.

In 1932 Democrats selected Roosevelt as their presidential candidate. Promising to introduce a "New Deal" to help those suffering from the depression, Roosevelt won a landslide victory over Herbert Hoover and entered office in spring 1933. He immediately started addressing the nation's most pressing concerns. He established many federal jobs programs, including the Civilian Conservation Corps, the National Youth Administration, and the Works Progress Administration, to put more than twelve million people to work. He also introduced measures to help the banking and agricultural industries, to provide low-cost electricity, and to protect bank deposits.

Roosevelt's second term, begun in 1936, faced growing criticism over some of his programs. Despite this opposition, the National Labor Relations Act and the Social Security Act were passed and had far-reaching impacts on business and public welfare.

Roosevelt was elected to a third term (the presidency was later restricted to two terms). Now recovering from the Great Depression, the United States offered indirect support to Great Britain as it defended itself against German attack in World War II. The United States did not fully enter the war until December 1941, when Japan attacked the U.S. naval base at Pearl Harbor, Hawaii. Roosevelt led the successful U.S. war effort.

In November 1944 Roosevelt was elected to a fourth term in office, becoming the only U.S. president to serve four terms. The following February, he met with British and Soviet leaders at Yalta in the Soviet Union to plan for the war's aftermath. Returning to the United States, Roosevelt traveled to his vacation home in Warm Springs, Georgia. He died there on April 12, 1945, of a cerebral hemorrhage.

"A swell time while it lasted"

Now it seemed that the Roaring Twenties were really over. In addition to the shift in economic fortunes, other changes were in the air. Labor unions, for example, which had lost influence and members during the 1920s, now found management listening to their demands. At the same time, the unions were including more immigrants, African Americans, and women in their ranks as they recognized for the first time the reality of a diverse workforce. Another big change had to do with Prohibition. Resistance to this amendment, which had come to be seen as both an unwelcome attempt to intrude on people's private lives and a stimulus to crime, finally led to its downfall. The Twenty-First Amendment, passed in 1933, repealed (overturned) Prohibition.

Meanwhile, writers and other artists began to look back on the Roaring Twenties with new eyes. The pursuits that F. Scott Fitzgerald (1896–1940) had chronicled in his "Jazz Age" short stories and novels now seemed frivolous and shallow. From the perspective of the Depression, the 1920s appeared as a time of wasteful excess. Writing in his autobiography, The Big Sea, African American poet Langston Hughes (1902–1967) looked back at the end of the Harlem Renaissance, the blossoming of African American arts and culture that had taken place in the 1920s, and sighed, "I had a swell time while it lasted." The writers of the 1930s would turn increasingly to social issues, adopting a more serious tone and a style of social realism to reflect the harsh conditions and downcast mood of the Great Depression.

Students of the Roaring Twenties have been left with many colorful images, from flappers dancing the Charleston to gangsters toting guns to Charles Lindbergh (1902–1974) flying solo across the Atlantic Ocean. But these pictures do not tell the whole story. The 1920s were a period of great fun as well as major advancements in technology, science, medicine, and the arts. It was also a time of sometimes painful change in values and ideas as the modern world bumped up against traditional beliefs.

It was the period in which the modern U.S. culture—for example, women participate fully in society, improvements in technology and transportation bring color and convenience to life, and people are fascinated with celebrities—first emerged. The Roaring Twenties will no doubt always interest anyone who seeks the story of U.S. history in the twentieth century. It was truly an unforgettable decade, an era both of serious conflict and, in Nathan Miller's words, of "wonderful nonsense."

For More Information


Allen, Frederick Lewis. Only Yesterday: An Informal History of the 1920s. New York: Perennial, 1964.

Dumenil, Lynn. The Modern Temper: American Culture and Society in the 1920s. New York: Hill and Wang, 1995.

Fremon, David K. The Great Depression in American History. Springfield, NJ: Enslow Publishers, Inc., 1996.

Goldston, Robert. The Great Depression: The United States in the Thirties. Greenwich, CT: Fawcett, 1968.

Hughes, Langston. The Big Sea: An Autobiography. New York: Knopf, 1940.

Katz, William Loren. The New Freedom to the New Deal 1913–1939. Austin, TX: Raintree Steck-Vaughn, 1993.

Klein, Maury. Rainbow's End: The Crash of 1929. New York: Oxford University Press, 2001.

Miller, Nathan. New World Coming: The 1920s and the Making of Modern America. New York: Scribner, 2003.

Parrish, Michael E. Anxious Decades: America in Prosperity and Depression. New York: Norton, 1992.

Perret, Geoffrey. America in the Twenties. New York: Touchstone, 1982.

Sobel, Robert. The Great Bull Market: Wall Street in the 1920s. New York: Norton, 1968.

Wilson, Joan Hoff. American Business and Foreign Policy, 1920–1933. Boston: Beacon, 1973.

Web Sites

"America from the Great Depression to World War II: Photos from the FSA OWI, 1935–1945." Library of Congress. Available online at Accessed on June 17, 2005.

"American Cultural History, Decade 1920–1929." Kingwood College Library. Available online at Accessed on June 17, 2005.

Best of History Websites. Available online at Accessed on June 17, 2005.

Clash of Cultures in the 1910s and 1920s. Available online at Accessed on June 17, 2005.

"Herbert Clark Hoover (1929–1933)." American President. Available online at Accessed on June 17, 2005.

Interpreting Primary Sources. Digital History. Available online at Accessed on June 17, 2005.

New Deal Network. Available online at Accessed on June 17, 2005.

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