From Roaring Twenties to Great Depression: The Harsh Transition

The transition from the Roaring Twenties to the Great Depression did not happen overnight. It was a process that unfolded over four years, from the Black Thursday panic of October 1929 to the inauguration of Franklin D. Roosevelt on March 4, 1933. For the broader context, see the parent end of the Roaring Twenties; for the underlying mechanisms, ; and for the human consequences,

October 1929: The Crash and the Denial

The crash of October 1929 was not, in itself, the end of the Roaring Twenties. Many contemporaries — including the most experienced bankers and economists of the day — believed that the crash was a temporary setback and a buying opportunity. The first sign of trouble came on Black Thursday, October 24, when the market opened weak and the losses accelerated. After a meeting at the offices of J.P. Morgan, a group of leading bankers agreed to pool resources and buy blue-chip stocks. The intervention succeeded for a day, and the market closed with the Dow down only modestly. Thomas W. Lamont of J.P. Morgan told reporters that the market had “hit bottom.” The full chronology of the crash is told in our Black Tuesday page.

The bankers’ intervention failed. Black Monday, October 28, the Dow fell 12.8 percent, and the ticker-tape machines fell behind by hours. Black Tuesday, October 29, was the worst day 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. By mid-November, the value of all listed stocks had fallen by about half from the September high. And yet, in the weeks and months that followed, the country entered a period of denial. President Herbert Hoover told the country that the “fundamental business of the country … is on a sound and prosperous basis.”

1930: The Brief Recovery and the Renewed Decline

The year 1930 was a year of false hope. The stock market rallied through April, with the Dow climbing back from 198 to 294 on April 17. The rally was driven by bargain-hunting investors who believed that the worst was over. The renewed decline began in May 1930. The first wave of bank failures began in October 1930, when a run on the Bank of Tennessee in Nashville spread. The largest single failure was the Bank of the United States in New York in December 1930. The Smoot-Hawley Tariff, signed by Hoover on June 17, 1930, raised tariffs on more than 20,000 imported goods to record levels and set off a wave of retaliation. By the end of 1930, unemployment had risen to 15 percent.

1931: The International Crisis

The year 1931 was the year the depression became international. The crisis began in May, when the Creditanstalt, the largest bank in Austria, collapsed. The collapse spread to Germany in July, when the Danat-Bank failed. Britain left the gold standard in September 1931. By the end of 1931, the international financial system was in disarray. The second wave of bank failures in the United States began in the autumn of 1931, as the European crisis undermined confidence. By the end of 1931, more than 2,300 American banks had failed, and the contraction of the money supply was accelerating. Unemployment rose past 15 percent. The full story of the international crisis is told in our causes of the Great Depression coverage.

1932: The Bottom

The year 1932 was the bottom. The Dow Jones Industrial Average hit its all-time low of 41.22 on July 8, 1932, a decline of 89 percent from its 1929 peak. Unemployment reached roughly 23 percent. Industrial production had fallen by half from its 1929 level. Wholesale prices had fallen by a third. The 1932 presidential election was a landslide. Franklin D. Roosevelt won 472 electoral votes to Hoover’s 59, and 22.8 percent of the popular vote — the largest margin in American presidential history to that point. The election was the end of the Republican decade that had begun in 1920, and the beginning of the New Deal.

The most dramatic political event of 1932 was the Bonus Army — about 20,000 World War I veterans who marched on Washington in May and June 1932 to demand the immediate payment of a bonus. On July 28, 1932, Hoover ordered the Army, under General Douglas MacArthur, to clear the camps. The eviction — with tanks, tear gas, and bayonets — produced several deaths and a national outcry. The full story of Hoover’s failed response is told in our Harding, Coolidge, and Hoover coverage.

1933: The New Deal

The year 1933 was the year of the New Deal. Franklin D. Roosevelt was inaugurated on March 4, 1933, and in his inaugural address he told the country that “the only thing we have to fear is fear itself.” Four days later, on March 6, he declared a bank holiday — closing every bank in the country for four days. The Emergency Banking Act, passed on March 9, authorized the reopening of the solvent banks under federal supervision. Within two weeks, more than 70 percent of the country’s banks had reopened, and the bank runs that had been a feature of the depression ended.

The first hundred days produced a flood of legislation. The Glass-Steagall Act of June 1933 separated commercial and investment banking, created the Federal Deposit Insurance Corporation (FDIC), and gave the Federal Reserve new authority. The Securities Act of 1933 required public disclosure of new stock offerings, and the Securities Exchange Act of 1934 created the Securities and Exchange Commission (SEC). The Tennessee Valley Authority (TVA) brought electricity and flood control to one of the poorest regions of the country. The Civilian Conservation Corps (CCC) employed more than 2.5 million young men. The National Industrial Recovery Act (NIRA) attempted to organize industrial recovery through codes of fair competition. None were a complete success, and some were struck down by the Supreme Court. But the first hundred days marked a fundamental change in the relationship between the American government and the American economy.

The other major event of 1933 was the end of Prohibition. The Twenty-First Amendment, which repealed the Eighteenth Amendment, was ratified on December 5, 1933. The amendment was the first to be ratified by convention rather than by state legislature. The repeal marked the end of an era that had begun in 1920.

The Cultural Shift

The transition was also a cultural transition. The Jazz Age had been characterized by an optimistic, secular, consumerist culture centered on the flapper, the movie palace, the radio, and the automobile. The 1930s produced a different culture: a culture of social realism that emphasized the struggles of the poor, the worker, and the farmer. John Steinbeck’s The Grapes of Wrath (1939), James Agee’s Let Us Now Praise Famous Men (1941), and Richard Wright’s Native Son (1940) depicted the lives of ordinary Americans in unflinching detail. The documentary photography of Dorothea Lange, Walker Evans, and Margaret Bourke-White — many employed by the Farm Security Administration — produced some of the most iconic images of the depression, including Lange’s “Migrant Mother” of 1936. The Federal Art Project, the Federal Writers’ Project, the Federal Theatre Project, and the Federal Music Project — together, Federal Project Number One — were the cultural arms of the New Deal, producing an extraordinary body of work and helping to invent the modern American documentary tradition.

The Long Recovery

The recovery from the depression was long and incomplete. Unemployment did not fall below 10 percent until 1941, and the depression did not fully end until the massive military spending of the Second World War. The decision to pursue recovery through war production was the only mechanism that finally ended the depression. By 1943, unemployment had fallen below 2 percent. The transition from the Roaring Twenties to the Great Depression was, in the end, the transition that defined the modern American state. The 1929 crash did not just end the Roaring Twenties. It created the world we live in.