The Roaring Twenties
Through the 1920s, the United States experienced extraordinary economic expansion. New technologies — automobiles, radio, cinema — transformed everyday life. The stock market rose steadily, then spectacularly. Ordinary people borrowed money to buy stocks on margin — putting down as little as 10 percent and borrowing the rest. This leverage amplified gains on the way up. It would amplify losses catastrophically on the way down. By September 1929, stock prices had risen far beyond any connection to corporate earnings.
Black Thursday
On October 24th 1929, panic hit. Selling orders flooded the market. In four days the market lost 25 percent of its value. The crash was catastrophic — but it was potentially survivable. Previous market crashes had lasted months before recovery. What turned the 1929 crash into a decade-long catastrophe was a series of catastrophically bad government decisions that followed.
The Government Made It Worse
The Federal Reserve raised interest rates after the crash to protect the gold standard — exactly the wrong response. Congress passed the Smoot-Hawley Tariff in 1930, raising import taxes to protect American jobs. Other countries retaliated immediately. Global trade collapsed by 66 percent in two years. The US government allowed over 9,000 banks to fail without intervention, wiping out millions of Americans' savings. A serious recession became the Great Depression.
The Parallels to Today
Unemployment hit 25 percent. Families lost homes and savings. It took World War Two — and the largest government spending programme in history — to finally end it. Every financial crisis since has been managed differently because of this lesson: central banks cut rates rather than raising them, governments increase spending rather than cutting it, banks are supported rather than allowed to fail. These interventions are imperfect and controversial, but they have prevented any post-1929 recession from becoming a full depression. The warning signs that preceded 1929 — excessive debt, disconnected asset prices, widespread speculation by those who do not understand what they are buying — reappear regularly. The question is never whether another crash will happen. It is whether we will make the same mistakes in response. For related financial history see Tulip Mania.
A Note From The Editor
The 1929 crash is usually presented as an economic story. I think it's really a story about decisions — and about how the wrong decisions made at the wrong moment can turn a bad situation into a catastrophe. The crash itself lasted days. The Depression lasted a decade. That gap between the two is entirely the story of human choices, political failures and ideological stubbornness. The market didn't create the Great Depression. People did. That's both more frightening and more hopeful — because people can also choose differently.