A Second Look at the Causes of the Great Depression
The backyard of tenant farmers’ home in the Mississippi Delta, 1939
(Library of Congress)
By the Editors
This article appears in the Winter 2025 issue of the Coolidge Review. Request a free copy of a future print issue.
Which of the following was NOT a major contributing factor to the onset of the Great Depression?
(A) Technological advances had allowed farmers and manufacturers to overproduce, creating large inventories.
(B) The federal government interfered too frequently with the economy, causing investors to lose confidence.
(C) Stock investors had been allowed to speculate wildly, creating an unstable and volatile stock market.
(D) Major businesses were controlled by so few producers that the failure of any one had a considerable effect on the national economy.
So runs Question 38 in the 2023 edition of the Princeton Review’s guide to prepare high schoolers for the Advanced Placement U.S. History exam. The question also appeared verbatim in the 2017 edition of the book. For decades, similar questions have popped up in prep books for standardized tests, and of course on tests themselves. Classroom lecturers pose yet other versions of the question, in both high schools and colleges.
Question 38 is valuable—in two ways—for what it tells us of our educational culture.
First, the culture admits of no ambiguity. That would be acceptable if the multiple-choice questions tested factual knowledge: “Which year did Congress pass the Smoot-Hawley Act?” But nowadays there is also only one answer for what is properly an essay question—the answer already printed at the back of the book. Education is an inquiry-free zone, one that imposes high penalties for those who even consider an exit. The hundreds of thousands of teens who take this exam every year care about getting into college. If they don’t select the authors’ answers, then their low scores will imperil their chances of attending even their “safety school.” Before, during, and after the COVID lockdown, students have operated under another lockdown, a Knowledge Lockdown. Small wonder that students suffer from what the economist Kevin Hassett has called the “death of curiosity.”
Second, the question demonstrates, and in a splendidly compact fashion, how conventional history can befuddle. The sanctioned answer—in this case, “B”—would be correct if readers equated the 1929 stock market crash with the onset of the Great Depression. “B” might also be correct if the question at the top were: “Which of the following did not cause the 1929 stock market crash?” But if “B” is the only correct answer to the question as written, the question must be interpreted as assuming that the crash doomed America to the Great Depression. And the crash did not do that. The Dow Jones Industrial Average climbed from a November 1929 low of 199 to 294 in April 1930. Americans rated this recovery.
HOOVER’S INTERVENTIONS
In, say, the year 1931 or 1932, Americans would have associated the onset of the Depression, the moment Main Street fell ill, with the shortage of cash available to fund businesses. They might also have noted that the market plunged again long after the 1929 crash—with the Dow Jones falling to 158 in December 1930, and then tumbling below 100 in late September 1931. Those dramatic drops occurred for different reasons. One factor was ham-fisted intervention by President Herbert Hoover.
And that is not all. The “A,” “C,” and “D” put forward as undebatable causes of the Great Depression were not necessarily that. A possible factor in the early years of the Depression—a factor that is key in current policy as well—was protectionism. Where is “E,” the punishing Smoot-Hawley Tariff of 1930, among Question 38’s options?
Both problems are serious. But the second one, our schools’ habit of ironing into generations of minds a chain of mostly dubious contentions about the Great Depression, has more immediate consequences. When the next downturn hits, statesmen and college sophomores alike will approach the challenge in the framework of such exam entries. Kamala Harris did just that during the 2024 presidential campaign when she called for “bold, persistent experimentation,” a Franklin Roosevelt line.
That’s why the chain of assumptions warrants a quick summary—and a check against the facts.
“No altered system will work a miracle. Any wild experiment will only add to the confusion. Our best assurance lies in efficient administration of our proven system.”
—President Warren Harding, Inaugural Address, 1921
NORMALCY VS. EXPERIMENTATION
The chain starts with the assumption that there was something deeply suspect about both the policies of the 1920s and the resulting economic growth. Presidents Warren Harding and Calvin Coolidge “generally worked to assist businesses”—to quote another prep question—“rather than regulate them.” Something about that led citizens to “speculate wildly” and the private sector to “overproduce.”
Next in the chain comes the Crash of 1929, which was not a mere crash like so many others but forced the “onset” of the Great Depression, all ten years of it. The president in office in the first years after the 1929 crash, Herbert Hoover, continued the policies of Harding and Coolidge, not interfering, to use the testers’ verb.
Come 1933, President Franklin Roosevelt rescued America with his New Deal. Though he may have erred in some ways, Roosevelt deserves praise for recognizing that “old solutions were failing,” as the Princeton Review suggests. That joblessness stayed stubbornly high, above 10 percent, throughout the decade receives acknowledgment, even in more progressive texts. But on balance, we are told, praise is due Roosevelt, especially, as the Princeton Review puts it, for “taking bold chances” in his first two terms.
A more accurate rendition starts with a policy decision in an era as bumptious and indebted as our own, the early 1920s. The Republican Party in 1920 turned its back on the heady progressive experimentation popular both within the party and among Democrats. Instead, the GOP leaned hard into dull, a counterintuitive posture for any political party. The Republican presidential candidate that year, Warren Harding, campaigned on “normalcy,” by which he meant enabling a return to pre-war stability by cutting the stupendous war debt, reducing taxes, and pulling back government.
“No altered system will work a miracle,” intoned Harding after he won. “Any wild experiment will only add to the confusion. Our best assurance lies in efficient administration of our proven system.”
More deliberate than that, political statements don’t come.
Notwithstanding a severe recession that had set in before he took office, Harding delivered on normalcy. He launched a series of tax cuts and cut the federal budget. These two policies indeed helped business, though—with one glaring exception, the Harding tariffs—not in the way that the multiple-choice culture implies. When the economy stumbled, the philosophy was, the economy should right itself—without government aid or subsidy.
Normalcy freed business to find its feet. The benefits of the subsequent production boom reached nearly all: for the first time Americans found they could afford cars, telephones, and household appliances we still use today. Productivity gains appear a dry concept, but such gains meant that the old six-day workweek could drop to five. In other words, normalcy gave us the gift we call “Saturday.”
The commitment to normalcy mattered, for when Harding passed away in 1923, his successor, Coolidge, honored the same pledge, continuing the tax-cut drive and the budget cutting, and refraining from great interventions. Eight years of normalcy built “trust,” to use a Question 38 noun. The Dow Jones Industrial Average rose dramatically, more than doubling, and then rose again. “He didn’t do nothing,” remarked the humorist Will Rogers of Coolidge, “but that’s what we wanted done.”
No recovery is perfect. Many, including Coolidge, understood that a market drop was due. Such corrections occurred with some frequency in that era. Some reforms went undone. Linking the isolated small banks that dotted the land would have improved their ability to withstand the punishing money drought of the Depression’s early years. Under Coolidge and Hoover, the Federal Reserve and Treasury pushed interest rates too low at times, and at others, too high. But few reckoned that a crash would yield a Great Depression. Not many Americans owned stocks at the time, so market crashes need not devastate Main Street. In the 1920s, most Americans expected that prosperity would follow prosperity. That comes clear in another metric, the metric of hope: patent rights. Patent rates were so high in the 1920s that they warrant their own AP question.
When the crash did come, under Hoover, there was still no reason to suspect a decade of disaster. Hoover had promised to deliver more Coolidge policy. Yet in office he pursued a different course. Where Harding and Coolidge had been still, Hoover was all action. Contra answer “B,” Hoover intervened in markets in unprecedented ways, ordering stock market operators to forgo shorts and discouraging “speculation”—what others might describe as “allowing the market to clear.”
Under Hoover, Congress more than doubled the top income tax rate, hardly encouraging to those patent holders or businesses. All these moves impeded recovery. Hoover also signed into law the punishing Smoot-Hawley Tariff. The tariff depressed international trade at a moment when trade partners and markets already struggled. It also made some basic goods more expensive at home, a shift that hit the unemployed in their Hoovervilles especially hard.
The single greatest factor in the Great Depression’s duration was the pursuit of policy the mirror opposite to that of the 1920s.
THE POWER OF INQUIRY
Three years into such policies, Americans turned to another activist, Franklin Roosevelt of New York. In his campaign, Roosevelt promised to “put America back to work.” But Roosevelt assailed business in language far rougher than that of recent presidents. Where predecessors, even Hoover, had acknowledged the cost of experimentation—Harding’s “wild experiment”—Roosevelt made experimentation his official brand. He vilified the rogue businessman, “whose hand is against every man’s.” This alone chilled investors. For who was to know which businessmen were rogues, and which, friendly producers?
As president, Roosevelt proved far bolder, and less respectful of the Constitution, than Hoover. His New Deal assumed management of two entire sectors of the economy, industry and agriculture, forcing struggling businesses to struggle yet harder. New Dealers crafted both the National Recovery Administration and the Agricultural Adjustment Administration to limit the overproduction referenced in the Princeton Review question.
Yet forcing businesses or farms to produce less and raise prices—the policy based on overproduction theory—did not foster recovery. Several years in, even the Brookings Institution concluded that the National Recovery Administration had on the whole “retarded recovery.”
To his credit, and after some prodding by Secretary of State Cordell Hull, FDR recognized the value of trade and began to open world markets in the Reciprocal Trade Agreements Act of 1934. He created the Securities and Exchange Commission to oversee Wall Street. After he instituted deposit insurance, far fewer banks failed, though another bank reform might have been yet wiser. Roosevelt also cheered Americans by providing jobs, albeit mostly temporary, on infrastructure projects.
But employment at the Civilian Conservation Corps or the Works Progress Administration could not offset the salaried posts lost through the manhandling, befuddling, and idling of industry. Especially damaging was FDR’s campaign to drive up wages, first through the National Industrial Recovery Act and then through a powerful union law, the 1935 Wagner Act. The high-wage pressure forced employers to rehire more slowly, fatal in a nation that craved, above all, more jobs.
When his initial experiments failed, Roosevelt waged what we would call lawfare, attacking the very industries that might have pulled the economy into recovery, such as utilities. Or he simply tried new experiments. The later experiments foundered as well, yielding what is known as the “Depression within the Depression” of 1937 and 1938, when joblessness approached 20 percent. Prospects brightened only when Roosevelt invited some of the same industries his Justice Department had pestered or prosecuted to help prepare for the coming war.
It was this duration, a decade of double-digit joblessness, that put the “Great” in the Great Depression. Evidence suggests that the single greatest factor in the duration was the pursuit of policy the mirror opposite to that of the 1920s—“bold, persistent experimentation” instead of “our proven system.”
Many recognized the crucial difference. Toward the end of a book that retraced the 1930s, Chase Bank economist Benjamin Anderson concluded that the Great Depression resulted from “the efforts of the governments, and very especially of the Government of the United States, to play God.”
That conclusions such as Anderson’s are little known today is a tragedy that ranks with the Depression itself. The hope is that the Great Awakening of parents and educators since COVID gives innovators a chance to break the hold of our educational authorities.
The point is not to coerce Americans into trading one set of answers for another, even if the second set stands nearer to truth. It is that Americans—even, or especially, teenagers—deserve the freedom to conduct their own investigations. On the great multiple-choice problem that is economic knowledge, only “inquiry” is always the right answer.
This article appears in the Winter 2025 issue of the Coolidge Review. Request a free copy of a future print issue.