Following World War I, a series of three presidential administrations promoted the economic theory known as laissez-faire (which translates to English as “let do”) capitalism. This philosophy encourages the government to stay out of the economy and maintains that the lack of interference will promote growth within the private market. However, the increasing distance between regulatory power and a whirlwind economy had serious consequences that Americans had to face collectively during the Great Depression.
The lack of oversight between the federal government and the banking industry was the primary driver of the stock market crash of 1929. Americans were buying many expensive items on unlimited credit and purchasing stocks “on the margin,” creating a bubble within the stock market that burst in October in 1929. The domino effect caused by the stock market crash led to the Great Depression. People pulled all of their money from their bank accounts in mass numbers in a practice that came to be known as “bank runs.” Without the ability to lend, banks closed in mass numbers, and local economies were decimated. Americans lost their jobs and their homes across the country.
Instead of reversing course and advocating government intervention to solve the crisis, President Hoover continued to promote the laissez-faire theory, which contributed to the economy getting progressively worse. Instead of investing in work programs for the American public, Hoover provided large banks and corporations with the expectation that this money would filter back into the American economy. However, these funds typically stayed within those organizations, and little was done to lift the country out of the economic crisis. Hoover eventually did promote legislation intended to reverse the course, but it was too little, too late.