The "Roaring '20s" and the Crash of 1929

38 Pages Posted: 12 Oct 2019 Last revised: 26 Oct 2019

See all articles by Robert F. Bruner

Robert F. Bruner

University of Virginia - Darden School of Business

Scott Miller

University of Virginia - Corcoran Department of History

Abstract

In April 1930, US Treasury Secretary Andrew Mellon reviewed recent stock market events as he prepared to enter a meeting of the Federal Reserve Board, which he chaired. In September and October 1929, the US stock market had fallen about a third, and then recovered somewhat. In response to the turmoil, the Federal Reserve (Fed) had lowered the discount rate in five steps from 6% to 3.71%, and market rates of interest across a range of debt securities had followed. Now, given the recovery in the stock market, Mellon wondered what further guidance to give to the Fed, and what actions to recommend to the president and to Congress. What were the lessons of the recent market turmoil? What policies should the Fed pursue? Answers to such questions depended on agreement about the issues to be resolved. Advice streamed in from business, politicians, the press, and pundits of all kinds, and hinged on interpretations of the recent turmoil, which ranged from a standard cyclical correction to an international crisis. This case presents the events leading up to the Great Depression and explores a range of responses and interpretations by participants, contemporary observers, and scholars of economics and history.

Excerpt

UVA-F-1908

Oct. 8, 2019

The “Roaring '20s” and the Crash of 1929

In April 1930, US Treasury Secretary Andrew Mellon prepared to enter a meeting of the Federal Reserve Board, which he chaired. He reviewed the recent turmoil in the stock market. In September and October 1929, the US stock market had fallen about a third, and then recovered somewhat (see Exhibit1). In response to the turmoil, the Federal Reserve (Fed) had lowered the discount rate in five steps from 6% to 3.71% (see Exhibit2), and market rates of interest across a range of debt securities had followed (see Exhibit3). Now, given the recovery in the stock market, Mellon wondered what further guidance to give to the Fed. What were the lessons of the recent market turmoil? What policies should the Fed pursue? Answers to such questions depended on agreement about the issues to be resolved. Advice streamed in from business, politicians, the press, and pundits of all kinds, arguing that the recent turmoil reflected:

A standard cyclical correction. Mellon should do nothing but issue calming statements.

Serious speculative impulses in US markets. Mellon should curb them with higher interest rates and more regulation.

. . .

Keywords: Fed, Federal Reserve, stock market, Andrew Mellon, World War I, Great Depression, international economy, social relief, international debt, equity market, bubble, Great Crash, speculation, financial policy, government regulation, free market, Republican orthodoxy, market run-up, market failure, Herbert Hoover, Smoot-Hawley Tariff, real estate market, agriculture, 1929, gold exchange standard, bank run

Suggested Citation

Bruner, Robert F. and Miller, Scott, The "Roaring '20s" and the Crash of 1929. Darden Case No. UVA-F-1908. Available at SSRN: https://ssrn.com/abstract=3468748

Robert F. Bruner (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-3823 (Phone)
434-924-0714 (Fax)

HOME PAGE: http://faculty.darden.edu/brunerb/

Scott Miller

University of Virginia - Corcoran Department of History ( email )

Randall Hall
Charlottesville, VA 22904
United States

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