After several massive losses in late October 1929, culminating in a day known as “Black Tuesday,” the US stock market crashed, precipitating the Great Depression. Almost instantly companies were forced to close, banks were without money, and much of the prosperity of the preceding decades was wiped clean. As panic spread across financial sectors, all eyes turned to the Republican president, Herbert Hoover, who had been elected to office the previous year on a campaign of pro-business optimism. Hoover, having witnessed several short-term financial crises in the previous quarter century, most notably the Panic of 1907, and believing firmly in the infallibility of the market, tried to reassure a nervous American public that the crash was temporary and isolated only to the stock market. Hoover believed that there was little real danger to the overall economy and that prosperity would return once investors regained their confidence.

After several massive losses in late October 1929, culminating in a day known as “Black Tuesday,” the US stock market crashed, precipitating the Great Depression. Almost instantly companies were forced to close, banks were without money, and much of the prosperity of the preceding decades was wiped clean. As panic spread across financial sectors, all eyes turned to the Republican president, Herbert Hoover, who had been elected to office the previous year on a campaign of pro-business optimism. Hoover, having witnessed several short-term financial crises in the previous quarter century, most notably the Panic of 1907, and believing firmly in the infallibility of the market, tried to reassure a nervous American public that the crash was temporary and isolated only to the stock market. Hoover believed that there was little real danger to the overall economy and that prosperity would return once investors regained their confidence.

Following the conclusion of World War I, the United States, bolstered by a weakened international market, entered into a decade-long period of economic prosperity known today as “The Roaring Twenties.” Between 1919 and 1929, America’s industrial sector greatly expanded as more Americans flooded into the nation’s urban centers. For the first time, regular Americans began investing in stocks, propelled by an unprecedented optimism in the country’s economic future. In fact, some of the leading financial analysts of the time, notably economist Irving Fisher, believed that the economic boom of the 1920s would continue indefinitely.

However, the prosperity of the Roaring Twenties was built on a shaky foundation, and several key factors worked throughout the decade to make the crash of 1929 a reality. First, while American cities saw massive economic gains throughout the decade, much of the country’s rural interior suffered. Neglect of the agricultural industry created financial hardships for farmers and effectively created an agricultural recession. Second, the overall banking system, which was dominated by small- and medium-sized banks, was generally too weak to absorb large shocks. American banks throughout the decade, especially those in rural areas, were prone to go bankrupt. Third, much in the investment in the stock market, especially in the latter half of the decade, was built on credit. Often buying stocks on margin–that is to say, purchasing stocks with only a small amount of money down–people borrowed heavily to invest, believing that investment would guarantee wealth. This practice, built on the irrational exuberance of investors, created a speculation bubble, much like that which hit the real estate market more recently, in 2008.

The first major indication that something was fundamentally wrong occurred in March 1929, when a sudden panic rippled through the market leading to a massive selloff of stocks. Although the slide was stopped, and temporarily reversed through a large cash infusion by National City Bank, the overall economy began to show signs of decline. Production and the sale of consumer goods began to slow as credit debt increased to dangerous levels. Then, in September, the US stock market began to swing wildly. Over the following several weeks, the market saw days of frenzied selling and buying, as investors reacted to a slowing economy and Congressional debate over the Smoot-Hawley Tariff Act, which would impose the highest taxes on imported goods in over a century.

The tipping point came on October 24, a day that became known as “Black Thursday,” when the market dropped by eleven percent immediately after the opening bell. Before the day was out, the heads of the major banks and investment houses of New York met and agreed to make major investments in US industry. The bailout helped to stabilize the market, but after news of the crisis spread over the weekend, whatever gains were made were subsequently erased. On October 28, “Black Monday,” the market dropped another thirteen percent, and then an additional twelve percent on the following day, October 28, “Black Tuesday.”

Political reaction to the crash was divided. While the Democrats and many voices on the Left called for immediate government intervention, Herbert Hoover and the majority of the Republican Party advised slow and deliberate action. Hoover, in particular, who had served as secretary of commerce under Calvin Coolidge, believed firmly in a laissez-faire, or hands-off, approach to economics. Despite having warned of the dangers of speculation during the 1928 presidential election, Hoover believed that the damage was isolated to the stock market and the best course of action, at least in the short term, was no action at all. Hoover tried to dismiss the panic spreading across the nation and even encouraged Americans to continue investing, believing firmly that if left alone the crisis would repair itself.

As things continued to get worse, Hoover’s critics painted him as being dangerously out of touch, and worse, callous in the face of a national crisis. To his credit, it did not take Hoover long to realize that the crash was not just a passing panic. Within weeks he began to promote plans to fix the economy, including aid for public works and indirect relief to help stabilize prices. However, Hoover refused large-scale government intervention, focusing instead on establishing partnerships with private industry and promoting charitable organizations. This did not sit well with his political opposition, nor with the American public. When in 1932 he ran for reelection, arguing that government intervention would lead to long-term economic ruin, he was firmly defeated by the Populist Democrat, Franklin D. Roosevelt.

Herbert Clark Hoover was born in Iowa in 1874. The son of Quakers, Hoover graduated from Stanford University with a degree in geology and subsequently found success as a mining engineer, rising swiftly to head several mining corporations. He made a name for himself during World War I, heading several prominent humanitarian efforts, most notably food relief for war-ravaged Belgium. Once the United States entered the war, Hoover was appointed by Woodrow Wilson to head the US Food Administration. With the election of Warren G. Harding in 1920, Hoover was made secretary of commerce and greatly expanded the relationship between government and private business, becoming so popular that he often overshadowed the president. In 1928, Hoover was elected to the presidency by a wide margin, promising a hands-off approach to the economy, but he saw his popularity decline just one year later, after the stock market crash of 1929. After a disastrous defeat to Franklin D. Roosevelt in 1932, Hoover became an outspoken critic of the New Deal and government intervention. He went back to government briefly in 1947, when he was appointed by President Harry S. Truman to reorganize executive departments. Hoover died in New York City in 1964.

Hoover begins his remarks by stating that he has no new information on the crash to offer the press, and sees no reason to make any public statement on the crisis. He states that overspeculation in the market, along with foreign investment funneled through the New York loan sector, has led to a crash. Specifically he explains that the New York Stock Exchange is the central deposit for foreign, especially European, investment. In order to settle their own financial crises, European nations borrowed heavily from the US market, and when these investments failed, American banks and corporations withdrew their money, leading to the subsequent crash. This investment capital is, according to Hoover, not gone but simply moved out of New York to the interior of the nation, where interest rates have fallen as a result of the flood of uninvested capital.

Hoover cites the Panic of 1907 as an example of investment flowing out of New York and into the nation’s interior. As there was no Federal Reserve System to monitor the situation, interest rates went up, resulting in financial panic nationwide. In the current crisis, according to Hoover, the Federal Reserve System (or “Fed”), which did not exist in 1907, was able to isolate the crisis to the New York Stock Exchange. Then, working with banks, the Fed was able to put money back into the financial sector, thus leading to lower interest rates and preventing the crisis from spreading beyond the stock market.

In other words, Hoover reassures the press, the crisis is isolated and the greater American economy remains unaffected by the crash. In fact, due to lower interest rates, the financial sector is working faster than before. For Hoover, any negative effects on production are purely “psychological”; he concedes that there has been some slowing, but he judges that overall the economy has continued to function as it should.

If Hoover’s abundance of optimism was not already enough, he assures the press that the sudden availability of so much capital will jump-start the staggering mortgage and bond markets, thus allowing delayed construction projects to begin and increase the rates of home ownership. For Hoover, the crisis is solely of the mind and, in reality, a significant economic opportunity. Yes, the market did crash, he allows, but thanks to the Fed, the crash has been isolated to the stock market alone, affecting no other segment of the economy.

Hoover’s main message about the financial crisis is that there is no financial crisis. The primary theme of the speech is that the system has worked, and the sudden crash of the stock market has opened up economic opportunities in the broader market. Thanks to the Federal Reserve, interest rates have fallen and investment capital has been made available in the interior of the nation. Soon, according to Hoover, any losses realized in New York will be turned into new roads, bridges, and houses across the nation.

Through this speech, then, Hoover serves as the voice of unbridled optimism, a firm and true believer in the power of the American economy and its ability to weather any storm. Here, Hoover represents the opinion of the American political Right, which–then, as now–held that the best way to encourage economic growth was not to meddle with the market, but to leave the economy to function on its own. Unfortunately for Hoover, the financial crisis only deepened. Just days after the president’s November 5 speech, the stock market began to slide again, and within months, every sector of the economy was affected. Although there is still some debate about how much the 1929 crash had to do with the subsequent Great Depression, there is little doubt that the immediate impact was devastating, resulting in a near complete collapse of confidence in American business. The decline in stock prices led to bankruptcies, closures, and the collapse of the credit market, which, in turn, led to mass unemployment and poverty. In the end, Hoover’s optimism was read by many Americans as lack of sympathy, and no other person was held more responsible than he for the hardships of the 1930s.

• Galbraith, John Kenneth.The Great Crash 1929. New York: Houghton Mifflin Harcourt, 2009. Print.
• Klein, Maury.Rainbow’s End: The Crash of 1929. New York: Harper & Row, 1989. Print.
• Leuchtenburg, William E.Herbert Hoover. New York: Times Books, 2009. Print. American Presidents Ser.
• “The Crash of 1929.” American Experience. Narr. Philip Bosco. PBS. WGBH, Boston, 1990. Television.