The Crash and the Great DepressionIn 1929, Yale University economist Irving Fisher stated confidently: "The nation is marching along a permanently high plateau of prosperity." Five days later, the bottom dropped out of the stock market and ushered in the Great Depression, the worst economic downturn in American history. Although Americans often believe that the Crash was the starting point of the Great Depression, many historians point out that it wasn't the sole cause. This lecture examines the roots of the Crash and the effect of the Great Depression on the American public.Some questions to keep in mind: 1.Why were Americans so confident in the stock market in the years leading up to the GreatDepression? 2.How did the Psychology of Consumption shape the causes and effects of the Crash? 3.How did stock market investing change during the 1920s? Who were the main investors and how did they pay for their investments? 4.Explain the statement: "By 1929, much of the money that was invested in the stock market did not actually exist." 5.Why did Hoover choose the term "depression" for this economic downturn? Why do you think this term has remained part of the American vocabulary ever since? Optimism and ProsperityWhen Americans elected Herbert Hoover President in 1928, the mood of the general public was one of optimism and confidence in the United States economy. Most people believed that nationalprosperity would continue indefinitely. In his acceptance speech for the Republican party nomination for the presidency, Hoover had said:"We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us."Many Americans shared Hoover's optimism at the beginning of 1929. An editorial in the New Year's edition of the New York Times on January 1, 1929, for example, stated:"It has been twelve months of unprecedented advance, of wonderful prosperity. If there isany way of judging the future by the past, this new year will be one of felicitation and hopefulness."That same year, John Jacob Raskob, Chief Executive of General Motors and head of the Democratic National Committee, published an article entitled "Everybody Ought to be Rich" in the Ladies Home Journal. Raskob suggested that every American could become wealthy by investing $15 a week in common stocks. He failed to realize, however, that the weekly salary of the average American worker was between $17 and $22, but that's not important: the optimism was there.A "Bull Market"1
For five years prior to 1929, rising prices typified the stock market. During this period, Americaninvestors enjoyed an enormous "bull market." (The opposite, a market characterized by falling prices, is called a "bear market."). Americans invested in the stock market for six reasons during the 1920s:1. Rising stock dividends.