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The Great Depression is one of the least understood periods of modern U.S. economic history. People are generally confused about the entirety of the Depression, but there is a particular lack of clarity about what caused the Depression in the first place.
Many people blame the 1929 stock market crash — when the Dow Jones Industrial Average lost a third of its value over just a few months — for bringing on the decade-long Depression.
Although many scholars have shown convincingly that the causes of the Great Depression are much more numerous and complex, still the 1929 stock-market-crash explanation persists among the general public.
But there’s much confusion, too, about the crash itself.
One widely-held belief is that President Calvin Coolidge encouraged a stock bubble by saying in 1929 that the economy was “absolutely sound” and that stocks were “cheap at current prices.”
However, as my colleague Amity Shlaes and George H. Nash — the renowned historian and noted scholar of Herbert Hoover — write in a new article for Forbes, Coolidge likely never uttered such phrases. On the contrary, research by Shlaes and Nash suggests that President Herbert Hoover put those words in Coolidge’s mouth.
Shlaes and Nash explain:
It appears the sole source for those quotations is Hoover. Recently, while reexamining the Coolidge-Hoover relationship, George H. Nash reviewed successive drafts of certain passages in Hoover’s memoirs. An early draft, written in pencil in Hoover’s own hand, reports a 1929 Coolidge comment in the third person and in the context of Hoover’s own concern about a coming stock market panic: “My situation was embarrassed by a press statement of Mr. Coolidge a few days before he left office assuring the country that its apparent prosperity was absolutely sound [and] that stocks were cheap in the market.” A later draft, typed, with pencil edits, encloses one of the two comments in quotation marks. This draft mentions a 1929 Coolidge statement “assuring the country that its apparent prosperity was ‘absolutely sound,’ that stocks were cheap in the market.” Eventually, in 1952, Hoover published a volume of memoirs in which both “absolutely sound” and “cheap at current prices” appeared in quotation marks, presented as Coolidge’s words. This drift suggests that Hoover may have inadvertently convinced himself over time that Coolidge uttered words he never had.
In any case, we have found no evidence for such a statement by Coolidge in 1929. The only pronouncement resembling Hoover’s description is Coolidge’s press statement (mentioned above) in 1928. If this is so, a Coolidge defender might argue that there’s a difference between commenting contentedly on a market at 200 and inciting a market already at 300 just one year later.
Sorting out the facts is the first step in demystifying history. With accurate facts in place, we are better equipped to study and debate the Depression and come to a fuller understanding of the period and its lessons for today.
Matthew Denhart is an expert on immigration policy and is the author of the Bush Institute’s America's Advantage: A Handbook of Vital Immigration and Economic Growth Statistics, now in its third edition. He currently serves as executive director of the Calvin Coolidge Presidential Foundation and is a founder of the Coolidge Scholars Program which provides full-ride merit scholarships to America's most promising college students. A summa cum laude graduate of Ohio University, Denhart has written and spoken widely on a variety of policy topics including the economics of higher education, labor, and taxes. He has contributed articles to numerous national publications including The Wall Street Journal, Forbes.com, CNN Opinion, and Bloomberg View.Full Bio
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