Policy Documents

What Do We Know About The Great Crash?

Alan Reynolds –
September 9, 1979

The Great Crash of October 1929 marked a fundamental break in U.S. history, a drastic change in basic attitudes and institutions that define the roles of citizen and state. Within about three years, stock prices were down to one-tenth of what they had been, real gross national product (GNP) had fallen by a third, industrial production was cut in half, and unemployment had hit a fourth of the labor force. Meanwhile, the public mind was affected as much as the economy, with the people turning to the government for security.

The terror of the Great Crash has been the failure to explain it. People were left with the feeling that massive economic contractions could occur at any moment, without warning, without cause. That fear has been exploited ever since as the major justification for virtually unlimited federal intervention in economic affairs.

From the obvious fact that it did not last, many conclude that the prosperity of the Twenties was in some sense phony and unreal. Actually, it was an enormously vibrant and creative decade. Real production per person increased by a whopping 42 percent from 1921 to 1929. Life expectancy at birth rose by 5.6 years. There were more applications for patents in 1929 than in any year until 1965. From 1923 to 1929, unemployment averaged 3.3 percent and inflation less than 1 percent.