The End of the Roaring Twenties: How the Party Stopped

For nine months in 1929, the United States appeared to be on top of the world. Herbert Hoover had been inaugurated in March on a platform that promised, in his famous phrase, “a chicken in every pot” and the end of American poverty. The stock market had risen almost without interruption for the better part of seven years. Unemployment was below 4 percent. Industrial production was at record levels. The talk of the country was the latest margin-buying fortunes, the new Model A, the new electric refrigerator, the new talkies from Hollywood.

It could not last. By the end of 1929, the economy had begun a contraction that would last for the rest of the 1930s, and that would be remembered for the rest of the twentieth century. ./timeline-of-the-1920s/) and the causes of the Great Depression; for the more personal account, ; for the transition story,

The Boom and Its Discontents

The prosperity of the 1920s was real, but it was also unevenly distributed and built on structural weaknesses that contemporaries did not fully appreciate. The most visible of these was the stock market bubble. Between 1921 and 1929, the value of the Dow Jones Industrial Average rose by almost 500 percent, far faster than the growth of corporate earnings, dividends, or the underlying economy. By the autumn of 1929, the average stock on the New York Stock Exchange traded at roughly 30 times its earnings — a multiple that would not be seen again until the 1990s, and that has rarely been exceeded.

A second weakness was the rise of margin buying. In the late 1920s, brokerage houses allowed investors to borrow up to 90 percent of the purchase price of a stock, putting down as little as 10 percent in cash. The system was wildly profitable in a rising market, because borrowed money was leveraged across a rapidly appreciating asset. But it was also extremely fragile: a 10 percent decline could wipe out a buyer’s entire equity, forcing a margin call and triggering more selling. The leverage of the system meant that even a modest downturn could turn into a panic.

A third weakness was the agricultural depression that had begun in 1920 and never really ended. The post-war collapse of European demand for American agricultural products, combined with the overproduction of the 1910s and the consolidation of corporate farming in the South and West, had left farmers in distress for most of the decade. Per-capita farm income in 1929 was less than half of the 1919 figure, and the rural banking system was failing in waves through the 1920s, well before the urban boom had collapsed. The agricultural problem was largely invisible to urban Americans, who heard about it as a vague background hum rather than as a structural weakness in the economy.

A fourth weakness was the rise of consumer debt. The 1920s had invented modern consumer credit: the installment plan (used widely for cars, furniture, radios, and washing machines), the revolving charge account, and the personal loan. By 1929, American households owed roughly $6 billion in installment debt, more than the federal government had borrowed to fight the First World War. The debt was manageable in good times but vulnerable to any interruption of income.

The October of 1929

The crash itself unfolded over four days in October 1929, with aftershocks that lasted for the rest of the year. The first sign of trouble was visible as early as September 3, 1929, when the Dow Jones Industrial Average reached its all-time high of 381.17. The market then began a slow decline that accelerated through the autumn.

Black Thursday, October 24, 1929: The market opened weak and the losses accelerated through the morning. The volume of trading overwhelmed the ticker-tape machines, which fell hours behind, leaving investors unable to learn the prices of their stocks. The ticker was the only source of price information for most buyers and sellers, and its breakdown added to the panic. After a meeting at the offices of J.P. Morgan, a group of leading bankers — including Thomas W. Lamont, Albert H. Wiggin, and Charles E. Mitchell of National City Bank — agreed to pool resources and buy blue-chip stocks in a coordinated effort to halt the slide. The market closed with the Dow down only modestly. The bankers believed that they had prevented a crisis.

Black Monday, October 28, 1929: The bankers’ intervention failed. The Dow opened lower and fell through the day, ending with a loss of 12.8 percent. Volume was so heavy that the ticker fell behind by several hours, and many investors could not trade at any price.

Black Tuesday, October 29, 1929: The Dow opened lower and continued to fall. The day was the most catastrophic in the history of the New York Stock Exchange to that point: 16.4 million shares changed hands, the value of the average stock lost 11.7 percent, and total losses reached roughly $9 billion, an inflation-adjusted sum of more than $160 billion in 2024 dollars. By the end of November, the value of all listed stocks had fallen by about half from the September high.

The crash of October 1929 was a financial catastrophe, but it was not yet a depression. The economy continued to grow through the first half of 1930, and many investors and economists believed that a normal recovery was imminent. President Hoover, who was determined to keep the country on a solid footing, would later call the crash “a mere incident, a little episode” in the larger story. The deeper crisis was yet to come. To follow the chronology in detail, see the stock market crash of 1929.

The Cascade: 1930 to 1933

The crash and the depression that followed were distinct events, and the causes of the depression are still debated. The four largest contributors were the cascade of bank failures that began in 1930, the Smoot-Hawley Tariff of June 1930, the tight-money policy of the Federal Reserve, and a worldwide wave of deflation that began with the depression in Britain and Germany.

The first major bank failures occurred in October 1930, when a run on the Bank of Tennessee in Nashville spread to other banks in the South and Midwest. By the end of 1930, more than 1,300 American banks had failed. By the end of 1931, the number had reached about 2,300. By the end of 1932, it was approaching 5,400. Each round of failures wiped out the savings of ordinary Americans and forced surviving banks to curtail lending, deepening the depression.

The Smoot-Hawley Tariff, signed by Hoover on June 17, 1930, raised tariffs on more than 20,000 imported goods to record levels. The act was intended to protect American farmers and manufacturers from foreign competition, but it set off a wave of retaliation by European governments, and world trade collapsed. Between 1929 and 1932, American exports fell by nearly 70 percent, and imports fell by a similar amount. The collapse of trade deepened the depression in the United States and in much of the world.

The Federal Reserve, meanwhile, made the depression worse by allowing the money supply to contract sharply. The Fed raised interest rates in 1930 and 1931 in an effort to defend the gold standard, and the resulting tight-money policy choked off the credit that farmers, businesses, and banks needed. The role of central bank policy in deepening the depression is the subject of the most influential modern work on the crash; the Harding, Coolidge, and Hoover administrations had, in effect, left the system without a working backstop.

The Human Cost

The Great Depression was, by the early 1930s, the worst economic crisis in American history. The unemployment rate, which had been below 4 percent in 1929, climbed past 8 percent in 1930, past 15 percent in 1931, past 22 percent in 1932, and reached roughly 25 percent in 1933. The number of unemployed Americans rose from about 1.5 million in 1929 to more than 12 million in 1933. Industrial production fell by 47 percent between 1929 and 1932. Real per-capita income fell by 30 percent. Wholesale prices fell by 32 percent.

The human consequences were visible everywhere. In the cities, the unemployed built shantytowns of cardboard, tar paper, and scrap lumber on unused land, where they lived on breadlines and charity. The shantytowns were called “Hoovervilles” by the press, in bitter reference to the president, and the newspapers called old newspapers used for blankets “Hoover blankets.” The men who stood in soup lines were “Hoover flags.” Empty pockets pulled inside out were “Hoover flags” too. The contrast with the prosperity of 1928 and 1929 was so stark that the term “Hoover” was used, with bitter irony, as a synonym for poverty.

In the countryside, the depression was compounded by a series of dust storms that began in 1930 and culminated in the Dust Bowl of 1935. The over-cultivation of marginal land in the Great Plains, combined with a severe drought, produced storms of dust that reached as far east as New York and Washington, D.C. The dust storms destroyed the farms of roughly 2.5 million people, and the Okies — displaced farmers and sharecroppers from Oklahoma, Texas, Arkansas, and Missouri — joined the wave of migration to California. John Steinbeck’s novel The Grapes of Wrath (1939) was the most famous account of that migration.

Why the Depression Lasted So Long

The question of why the Great Depression lasted so long, and why it was so severe, is the subject of one of the most important debates in modern economics. The most influential answer, first proposed by Peter Temin in 1976 and elaborated by Ben Bernanke in 1983, focuses on the cascade of bank failures and the Federal Reserve’s failure to act as a lender of last resort. With each round of bank failures, the money supply contracted, and the Fed, charged by its founding legislation with maintaining the gold standard, chose to defend the gold parity rather than to expand the money supply. The result was a self-reinforcing contraction of credit, demand, and output.

Other economists have emphasized the role of the Smoot-Hawley Tariff, the worldwide deflation, the stock market crash of 1929 itself, the over-extension of consumer credit, and the structural weaknesses of an economy that had become over-dependent on the automobile, residential construction, and the new consumer goods. The most likely truth is that all of these factors contributed, and that the depression was the result of multiple failures of policy, regulation, and economic theory converging at once.

The election of Franklin D. Roosevelt in November 1932, and the inauguration of the New Deal in March 1933, would begin the long recovery. The first hundred days of the Roosevelt administration saw the bank holiday, the Emergency Banking Act, the Glass-Steagall Act, the creation of the Tennessee Valley Authority, the Civilian Conservation Corps, and the National Industrial Recovery Act. None of these were a complete success, and the depression did not fully end until the massive military spending of the Second World War. But the 1932 election and the early New Deal marked the political end of the Roaring Twenties, and the beginning of a new era.

Why the Twenties Stopped: October 1929 and Its Aftermath

The end of the Roaring Twenties was not a single event but a series of cascading failures that unfolded over four years. The crash of October 1929 was the visible beginning. The bank failures, the Smoot-Hawley Tariff, and the Federal Reserve’s tight-money policy turned the crash into a contraction. The contraction became a depression, and the depression became a generation-defining trauma. The Roaring Twenties were over.

But the legacies of the 1920s — the automobile, the radio, the talking film, the mass magazine, the consumer credit economy, the female voter, the modern city, the modern suburb — were not destroyed by the depression. They were the foundation on which the rest of the twentieth century would be built. To understand the 1930s, you have to understand the 1920s. To understand the 1920s, you have to understand the crash.