Despite the booming U.S. economy of the late 1920s, Calvin Coolidge decided not to run for president again. In his place, Republicans nominated the president’s handpicked successor, popular World War I humanitarian administrator Herbert Hoover, to continue America’s prosperity. Democrats chose New York Governor Alfred E. Smith on an anti-Prohibition platform. Hoover won with ease, with 444 electoral votes to Smith’s 87 and with a margin of more than 6 million popular votes.
Soon after Hoover took office, the good times and successful run of the bull market came to an abrupt halt. Stiffer competition with Britain for foreign investment spurred speculators to dump American stocks and securities in the late summer of 1929. By late October, it was clear that the bull had been grabbed by the horns, and an increasing number of Americans pulled their money out of the stock market. The Dow Jones Industrial Average fell steadily over a ten-day period, finally crashing on October 29, 1929. On this so-called Black Tuesday, investors panicked and dumped an unprecedented 16 million shares.
The rampant practice of buying on margin (see The Politics of Conservatism, p. 17 ), which had damaged Americans’ credit, made the effects of the stock market crash worse. As a result, within one month, American investors had lost tens of billions of dollars. Although the 1929 stock market crash was certainly the catalyst for the Great Depression, it was not the sole cause. Historians still debate exactly why the Great Depression was so severe, but they generally agree that it was the result of a confluence of factors.
Ever since the turn of the century, the foundation of the American economy had been shifting from heavy industry to consumer products. In other words, whereas most of America’s wealth in the late 1800s had come from producing iron, steel, coal, and oil, the economy of the early 1900s was based on manufacturing automobiles, radios, and myriad other items that Americans could buy for use in their own homes.
As Americans jumped on the consumer bandwagon, an increasing number of people began purchasing goods on credit, promising to pay for items later rather than up front. When the economic bubble of the 1920s burst, debtors were unable to pay up, and creditors were forced to absorb millions of dollars in bad loans. Policy makers found it difficult to end the depression’s vicious circle in this new consumer economy: Americans were unable to buy goods without jobs, yet factories were unable to provide jobs because Americans were not able to buy anything the factories produced.
Consumer goods were not the only commodities Americans bought on credit; buying stocks on margin had become very popular during the Roaring Twenties. In margin buying, an individual could purchase a share of a company’s stock and then use the promise of that share’s future earnings to buy more shares. Unfortunately, many people abused the system to invest huge sums of imaginary money that existed only on paper.