The Presidential Timeline of the Twentieth Century

The Economy in the 1920s

In many regards the 1920s were a time of economic prosperity. Innovations in technology resulted in huge gains in productivity and the introduction of new or cheaper consumer products such as radios, washing machines, refrigerators, vacuum cleaners, toasters, and automobiles. In order to help families pay for these products buying on credit became common; by 1925 75% of all automobile sales were on credit.

The decade began with the 1921 depression in which unemployment rose to five million people. President Harding assigned the new Secretary of Commerce Herbert Hoover the task of directing efforts to mitigate the effects of the depression. The members of the President’s Conference of Unemployment represented a partnership between government and business which recommended maintaining wages, public works programs, local action, and voluntary relief agencies.

Although many congressmen considered the work of the Conference socialistic, it illustrated Hoover’s philosophy that although the government should not normally interfere with the private sector, it should take action to mitigate the negative aspects of the business cycle.

In 1924 the Federal Reserve System adopted an easy money policy in order to promote additional business activity and encourage international capital flows. It also resulted in increased speculation in the stock market, which Hoover warned against in 1926.

Not all Americans shared in the prosperity of the decade, particularly hard hit were the farmers who made up 30% of the work force. Production levels that had supported the war effort now resulted in overproduction. The resulting surpluses caused the collapse of agricultural prices in 1920. They would not stabilize until 1940. One of Hoover’s 1928 campaign pledges was farm relief. He called a special session of Congress in April 1929 in order to address this issue and the interrelated issue of the tariff.

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The Stock Market Crash

For most Americans the stock market crash of 1929 has become the symbol marking the beginning of the Great Depression. The economic boom of the 1920s was reflected in a stock market which rose from 60 in 1920 to its peak of 381 on September 3, 1929. Then a decline began which would culminate with a crash lasting from Black Thursday, October 24th, to the following Black Tuesday, October 29, which was the worst day in stock market history. Eventually the market would hit its lowest point of 41 on July 8th, 1932 and the September peak would not be reached again until 1954.

Economists and historians continue to debate the causes of the crash and the Depression, although it is generally agreed that there were several contributing factors. First, easy money policies had encouraged heavy speculative investment in the stock market. Second, productivity had far outpaced wages. Buying on credit encouraged consumption, but also created large amounts of consumer debt. Thirdly, tariff and war-debt policies had greatly diminished foreign markets for American goods.

A number of facts supported the belief that this panic was a rough spot which would likely end within a year. As 1929 came to a close the stock market continued to drop, although unemployment was not rising and fourth quarter business profits were good.

Perhaps most significantly, no banks closed in the aftermath of Black Thursday. One of the key factors of earlier panics which developed into major depressions was a wave of bank failures. Fewer banks closed in1929 than 1924, 1926 or 1927. This fact contributed to the perception that the economy was not entering a major depression; rather it was repeating the same relatively brief, yet harsh disruption of the 1921 depression.

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Herbert Hoover’s Response: Year One

Hoover’s response to the stock market crash was to try and temper the effects of the financial panic on other sectors of the economy. This would be done primarily through the cooperation between business and labor, with the assistance of federal and local governments. These efforts were largely based on his experiences with the depression of 1921.

A series of meetings called the Conference for Continued Industrial Progress began on November 19. Hoover met with various representatives of labor, government, and industry to discuss how to prevent unemployment. The result of these meetings was a four-part program: maintain current wage rates, distribute available work to as many employees as possible, increase construction by business and government, and organize voluntary committees to assist the unemployed.

Hoover and others such as Henry Ford believed that the preservation of purchasing power was critical. The participants pledged to maintain employment and wages; Ford actually raised the wages of his automobile workers despite declining sales and profits. In January Hoover instituted a vigorous public works program which authorized $60 million to begin construction of the Hoover Dam, $75 million for road construction, and $500 million for public buildings.

The deepening farm crisis merited more direct intervention. In February Hoover established the Grain Stabilization Corporation which began federal wheat purchases in March. By June it had purchased 65 million bushels for $90 million. Never before had the federal government intervened so directly in the private sector.

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The Great Depression Emerges

Two events in 1930 signaled a significant shift in the public perception of the economic situation. First, the drought of 1930 brought with it severe hardship and starvation. Images of suffering farmers and children poignantly revealed the human dimension of the crisis. Second, the Depression was used as a campaign issue by some Democrats, who begin characterizing Hoover as a do-nothing president. Ironically, the same people had been attacking Hoover only weeks before for being too activist.

As 1930 neared its end several developments made it clear the economic situation in the country was far worse than previously believed. Businesses began reducing wages and their workforces causing a rise in unemployment. Most significantly, in November and December banks start failing at an alarming rate.

The scale of federal action in Hoover’s response to the stock market crash was unprecedented in U. S. history. This prompted historian Robert Sobel’s assertion that “no peacetime president since Jefferson had done more to expand the powers of the presidency than Hoover had in that one year.” It drew attacks by those who felt it gave the government too large of a role. Ultimately these efforts did not prevent the country from sliding into the Great Depression, although they represent a significant departure from the laissez faire attitudes of previous presidents and in many ways laid the groundwork for Franklin Roosevelt’s New Deal policies.