Today marks 84 years since the Great Stock Market Crash of 1929, also known as Black Tuesday. This typically is considered the beginning event of the Great Depression that lasted some 10 years in the United States.

The crash itself did not cause the Depression, but rather it was an overcorrection of a stock market that was too high and too inflationary. The 1920s was a period of good and strong economic gain, but with an abundance of speculating market traders, it became unstable.

The real problem that followed was deflation. That was joined with credit problems, monetary problems, and a decrease in international trade. Additionally, Both Hoover and FDR intervened to help the economy back on track. The effects of those interventions have been hotly debated.

Many of Hoover’s policies — meant to be aid recover — did not help as intended. Smoot-Hawley comes to mind. So does his tax increases when many could least afford them.


Where Do All Those Union Dues Go?

The election of FDR took things to a whole new level. FDR’s New Deal vastly expanded the size and scope of government with relief and regulatory agencies. Some projects, such as the Civilian Conservation Corps, remain hallmarks of improvement during a bleak age. Others, such as the National Recovery Administration, contributed to the prolonging of the Depression.

The National Recovery Administration in particular slowed growth in the business sector. Many were reluctant to hire employees because prices were fixed and capital was scarce. But the crushing blow was dealt with FDR’s “undistributed profits tax”.

This tax which introduced in 1936, was considered a revenue raiser for the New Deal. In reality it was merely a tool intended to extract money from businesses and into the economy. Businesses now had to distribute their profits in either wages or dividends rather than savings or investment. This directly impeded a business’s ability to save capital or reinvest profits back into the business, which crippled small businesses in particular.

The tax was such an economic failure that it was reduced by 1938 and repealed a year later. But the Depression went into its bleakest hour at that time in 1937.

Deep and far-reaching government intervention combined with unbridled spending programs throughout the 1930s by FDR prolonged rather than helped the economy to recover from the Great Depression. And today five years after the mini-market crash of 2008, there are definitely parallels of the policies of that era — and our recovery is certainly sluggish at best. Remembering Black Tuesday and the era afterwards serves as a reminder that runaway spending and expanded government aren’t always the medicine needed for a better economy.

Tags: Economy