Veblen died a few months before the "Great Crash" of 1929—when stock values reached an all-time high before tumbling down. There were no official warnings that such a financial catastrophe could occur. In fact, quite the contrary. Prosperity was everywhere, from President Hoover down to the lowly clerk; optimism was the keynote. In the United States there were 45 million jobs, a total income of $77 billion, and the average American family enjoyed the highest standard of living in history.
Magazines featured articles on how everyone could get rich—the formula was to save a portion of one's earnings and invest regularly in good common stocks. The public listened, and not only bankers and businesspeople, but barbers, bootblacks, and clerks all rushed to place their orders on the stock exchange. It was easy to do, for they all could buy "on margin"—that is, for as little as 10 percent in cash.
Beneath this surface boom, however, lay disturbing, but unnoticed facts. There were two million unemployed. Banks failed at the rate of 700 a year. Ominously, the distribution of income placed 24,000 families at the upper level of income, and some 6 million at the bottom—a ratio of 1 to 250. In this era of prosperity, the average American family was heavily mortgaged from excessive installment buying. When the crash came, it caught the public by surprise, as well as titans of finance, government officials, and expert economists.
The crash occurred in late October. Within two months, losses in stock value were awesome. Forty billion dollars of value disappeared. The downward trend continued. Fortunes were lost; suicides rose in number. Nine million savings accounts vanished as banks failed by the thousands. Over 85,000 individual businesses were wiped out. Working women labored for 10-25 cents per hour. In New York City, breadlines formed at the rate of 2,000 people a day. The "Great Depression" loomed.
By 1933, the national income had dropped by almost half; the average standard of living declined to the level of 1913. There were 14 million unemployed. The economy lay like a fallen giant as a feeling of hopelessness swept the land. What no respectable economist admitted could happen seemed a reality—a permanent depression.
In this situation, one would expect a radical like Marx to appear to attack the plight of the unemployed and to offer a drastic remedy. On the contrary, a respectable Englishman offered a solution. Well-schooled in the theories of orthodox economics, John Maynard Keynes was Alfred Marshall's most brilliant pupil. Nevertheless, Keynes proved adaptable enough to make a practical attempt at solving the problem of permanent depression.
