Prosperity began to fade in early 1929, although the public did not begin to realize it until after the sensational stock-market crash in October. As early as April, businessmen began to reduce their commitments, and in midsummer business activity began to decline. But there was no devastating panic in the money market or paralyzing liquidation in commercial banking. Optimists were therefore led to believe that, if a business recession occurred, it would not be any worse than those of 1924 and 1927. However, by mid-1930 even official circles lost their optimism as it became undeniable that a depression of more than usual severity had begun.
Instead of a short panic, the 1930's featured a deflation and liquidation that became increasingly severe as time passed. National income dropped from $83.3 billion in 1929 to $68.9 billion in 1930 and $40.0 billion in 1932. The Federal Reserve index of industrial production fell from 110 in 1929 to 91 in 1930 and 58 in 1932. Unemployment was estimated at 3 ½ million in 1930 and 15 million in 1933. The wholesale price index declined from 95.3 in 1929 to 86.4 in 1930 and 64.8 in 1932.
Herbert Hoover had the misfortune of being President when the storm broke. A successful businessman and an accomplished administrator, he lacked political acumen and an understanding of public feeling. He could not arouse enthusiasm for his administration or reinstill a spirit of confidence in the soundness of the economy. His was the first administration to use the powers of the Federal government as a means of recovering from the depression, and he himself tried desperately to turn the economic tide. Nevertheless, the public experienced a revulsion of feeling against the "Great Engineer" and constantly and unjustly denounced him as a "do-nothing" President. As a result, the Republican party lost control of Congress in the elections of 1930. The Hoover administration spent its last two years at constant loggerheads with the Democratically controlled Congress, and the Federal government was badly handicapped in its efforts to solve the problems of the depression.
According to the official biographers of the Hoover administration, the depression was comprised of five major breakdowns. After each one, Hoover succeeded in laying the groundwork for recovery. But his efforts were always defeated by factors beyond his control. The stockmarket crash ushered in the first phase of the depression. It represented a reaction from the preceding boom which had been caused chiefly by