The Great Depression lasted from October 24, 1929 until the economic recovery of the 1940 s. On October 29, Black Thursday, the stock market crashed heavily, and continued to fall sharply throughout the coming weeks. As a result, the United States and the world were thrown into a decade of poverty and unemployment. For five years prior to the crash, the stock market was characterized by the rising prices. Major reasons for such state included the rising stock dividends, increase in personal savings, relatively easy money policy, the fact that over-production profits were reinvested in new production, lack of stock market regulation, and the psychology of production.

People invested in stock in the effort to get fast profits. Increased personal savings made possible by the increase in wages provided people with the opportunity to invest. People also eagerly took loans to invest in stock. Over-production profits reinvested into new production led only to more over-production. In 1931 a national law-enforcement commission, formed to study the flouting of prohibition and the activities of gangsters, was to report that prohibition was virtually unenforceable; and, with the coming of the Great Depression, prohibition ceased to be a key political issue. In 1933 the Twenty-first Amendment brought its repeal.

In the meantime, prohibition and religion were the major issues of the 1928 presidential campaign between the Republican nominee, Herbert Hoover, and the Democrat, Governor Alfred E. Smith of New York. Smith was an opponent of prohibition and a Roman Catholic. His candidacy brought enthusiasm and a heavy Democratic vote in the large cities, but a landslide against him in the dry and Protestant hinterlands secured the election for Hoover. In October 1929, only months after Hoover took office, the stock market crashed, and the average value of 50 leading stocks falling by almost half in two months. Despite occasional rallies, the slide persisted until 1932, when stock averages were barely a fourth of what they had been in 1929.

Industrial production soon followed the stock market, giving rise to the worst unemployment the country had ever seen. By 1933 at least a quarter of the work force was unemployed. Adjusted for deflation, salaries had fallen by 40 percent and industrial wages by 60 percent. The causes of the Great Depression were many and various. Agriculture had collapsed in 1919 and was a continuing source of weakness. Because of poor regulatory policies, many banks were overextended.

Wages had not kept up with profits, and by the late 1920 s consumers were reaching the limits of their ability to borrow and spend. Production had already begun to decline and unemployment to rise before the crash. The crash, which was inevitable since stock prices were much in excess of real value, greatly accelerated every bad tendency, destroying the confidence of investors and consumers alike. Hoover met the crisis energetically, in contrast to earlier administrations, which had done little to cope with panics except reduce government spending. He extracted promises from manufacturers to maintain production. He signed legislation providing generous additional sums for public works.

He also signed the infamous Smoot Hawley Tariff of 1930, which raised duties by as much as 50 percent. These steps failed to ease the depression, however, while the tariff helped to export it. International trade had never recovered from World War I. Europe still depended on American sales and investments for income and on American loans to maintain the complicated structure of debt payments and reparations erected in the 1920 s.

After the crash Americans stopped investing in Europe, and the tariff deprived foreigners of their American markets. Foreign nations struck back with tariffs of their own, and all suffered from the resulting anarchy.