The Great Depression and Hoover's response
The Wall Street Crash
On 24 October 1929 — Black Thursday — the New York Stock Exchange experienced catastrophic selling as investors tried to offload shares whose prices had been inflated far beyond the value of the underlying companies. A temporary rally followed when leading bankers pooled resources to buy shares and stabilise the market. It did not hold. On Tuesday 29 October — Black Tuesday — share prices collapsed entirely. The Dow Jones Industrial Average lost around a quarter of its value in two days. By July 1932, it had fallen 89 per cent from its 1929 peak. It would not recover to pre-crash levels until 1954.
The crash was not caused by a single shock; it reflected structural weaknesses that had been building throughout the 1920s. Share speculation on buying on margin meant millions of investors owed money they could not repay when prices fell. Over-production in agriculture and industry meant companies were already earning less than their inflated share prices suggested. And consumer debt — the hire-purchase economy — left American families without the savings to sustain spending through a downturn.
The Great Depression: Scale and Human Cost
The Crash triggered a cascading economic crisis. Banks that had lent money for share speculation began to fail as borrowers defaulted. Between 1930 and 1933, roughly 9,000 American banks collapsed, wiping out the savings of millions of depositors. Without savings, families cut spending. Businesses responded by cutting production and sacking workers. Unemployment rose from around 3 per cent in 1929 to about 25 per cent by 1932–33 — around 13 million people out of work.
The human consequences were visible everywhere. Hoovervilles — shantytowns built from scrap wood, corrugated iron, and cardboard — appeared on the edges of cities and in parks. Bread lines and soup kitchens, many operated by charities and churches, fed hundreds of thousands. The Dust Bowl conditions in the Great Plains from the early 1930s drove hundreds of thousands of farming families off the land, the so-called “Okies” heading to California in search of work.
In June 1930, Hoover signed the Smoot-Hawley Tariff, raising taxes on over 20,000 imported goods to the highest levels in American history. The aim was to protect American industry and farmers from foreign competition. The result was a retaliatory tariff war: countries that exported to the US raised their own barriers, and American exports collapsed. World trade shrank by around 65 per cent between 1929 and 1934. The tariff is widely regarded by economic historians as having significantly deepened and prolonged the Depression.
Hoover’s Response: Neither Nothing Nor Enough
A common misconception among students is that Hoover “did nothing” in the face of the Depression. This is inaccurate. Hoover did intervene: he convened conferences with business leaders and urged them voluntarily to maintain wages; he increased federal public works spending; and he created the RFC. But his interventions were constrained by his ideological commitment to voluntary co-operation and his deep reluctance to make the federal government directly responsible for individual welfare. At a time when 25 per cent unemployment required emergency action, ideological restraint proved catastrophic for millions of Americans and for Hoover’s presidency.
Hoover’s most significant economic intervention was the creation of the RFC (Reconstruction Finance Corporation) in January 1932, which lent money to banks and businesses at risk of failure. He also increased federal public works spending and encouraged states to create their own relief programmes. But he refused to authorise direct federal relief to unemployed individuals, believing this would create dependency and undermine personal character — a position that seemed increasingly out of touch as unemployment reached 25 per cent.
In July 1932, around 17,000 veterans of the First World War — the “Bonus Army” — marched on Washington DC demanding early payment of a war bonus Congress had promised for 1945. Hoover refused. When a confrontation with police resulted in deaths, he authorised General Douglas MacArthur to disperse the veterans. MacArthur exceeded his orders, using cavalry, tanks, and tear gas to drive the marchers, their wives, and children from their camps. Images of army units attacking their own veterans destroyed what remained of Hoover’s political standing. In November 1932, Franklin D. Roosevelt defeated Hoover in a landslide, winning 42 of 48 states. The Democratic era of American politics had begun.