The 1920s and the 2020s: Could History Repeat Itself?

The 2020s are looking a lot like the “Roaring 1920s” — a period of garish but uneven American prosperity in the aftermath of the First World War.

The question is: Will the United States after the November 5 election make the same kind of mistakes it made in the 1920s that led to the stock market crash of 1929 — the near collapse of U.S. and European capitalist economies, and the Great Depression that lasted a decade?

“Only Yesterday” by Frederick Lewis Allen is the story of the successes and excesses of the 1920s. “Since Yesterday” is Allen’s remorseful sequel written in 1939 after a decade of Depression.

The common denominator

Aspirational consumerism and display are characteristics of both the 1920s and the 2020s. An ebullient stock market and rampant speculation was central to prosperity then as it is now. Prestigious financial firms in 2025 are again hawking enticing investment vehicles to inexperienced speculators who do not have the money to weather a deep downturn.

Americans in the 1920s for the first time had easy access to consumer credit, as they do today. Easy credit put prosperity in the reach of millions more people — but was terribly dangerous when prices went south.

There was a rush in the 1920s to acquire automobiles, radios and the like “on time.” Cruises and big houses are today’s measures for bragging rights.

Social parallels

Sexual morals changed dramatically in the 1920s. The moral confusion of the period was described by Sinclair Lewis in “Babbitt,” his classic about a small-town businessman adrift in a world where so much was changing and corrupted. “Babylon Revisited” by F. Scott Fitzgerald (1931) is about the guilty regrets that followed the “Roaring 20s.”

Bootleggers in the 1920s became folk heroes. Prohibition led to corruption, illicit fortunes and gangsterism. Churches and synagogues sold outlandish quantities of “sacramental” wine while police looked away. Today cocaine, fentanyl and addictive prescription drugs enrich another generation of “bootleggers.”

Women wore ankle length dresses and gloves before the First World War. In the 1920s, “flappers,” today’s “influencers” exposed their arms and shoulders in skippy dresses, coveted silk stockings and wore layers of rouge and lipstick.

U.S. urban centers were growing in the 1920s, but farmers and rural people were going under in droves. Urban rents were rising painfully as people left the land to live and work in cities — a pattern that continues today.

The Great War

The First World War, at first called the “European War,” began in August 1914. The United States entered the war only in April 1917, but its enormous resources in men and materiel determined the outcome.

Even before the United States entered, however, the UK and France borrowed huge sums from private U.S. financial institutions.

The winners and losers of war

Winners and losers in the 1920s after the hugely destructive war depended on loans at low interest rates from U.S. financiers to pay interest on wartime loans — as well as enormous reparations in the case of Germany.

U.S. rates on loans to buy stock “on margin” increased from 4% early in the 1920s to 12% in 1928 and 1929. European borrowers had to pay these rates — and more — to be able to continue borrowing.

U.S. financial firms provided debtors with the dollars they needed to pay their debts by selling the securities of European borrowers to U.S. customers. German railroad bonds and utility stocks were marketed as “safe” investments to American retail customers unaware of the risks.

Keynes’ advice falling on deaf ears

John Maynard Keynes, the famous economist, who advised the UK delegation at the Paris Peace Conference in 1919, warned that debtor countries — essentially everyone but the United States — would not be able to repay the debts they had taken on to pay for the war.

He counselled instead that German reparations should be drastically reduced, and that wartime loans from U.S. financiers to U.S. allies should be written off so that Europe could rebuild and recover.

U.S. President Woodrow Wilson and UK Prime Minister David Lloyd George, who attended the Paris Conference for months, at first were amenable to lower payments. As the Conference dragged on, however, it became clear that the public and politicians in the United States, the UK, France and Italy demanded financially impossible and punitive terms.

Wilson in Paris was told by his political advisors in the United States that the American public was against the “soft peace” he had promised earlier. He and Lloyd George both surrendered to domestic political realities, and the Peace Conference set financial terms for wartime allies and defeated enemies alike that were a ticking time bomb. The hope was to salvage the situation in the 1920s when wartime bitterness had faded.

Too little, too late

Indeed, there were negotiations in the 1920s — the Dawes Plan (1924) and the Young Plan (1929) — to reduce the enormous payments, but the adjustments were not enough to avoid financial disaster.

The situation became impossible in 1928 and 1929 when the U.S. Federal Reserve Bank raised rates to try to contain speculation in the U.S. stock market.

Businesses, consumers and governments in the United States and overseas could not continue borrowing at higher rates and stock and asset prices collapsed. The “Crash” was followed by the Great Depression — with rolling defaults in the United States and overseas, soaring unemployment, bread lines and round after round of falling prices and wages.

The Second World War

The U.S. government had the ability to create and spend money, as Keynes would have had it do from 1919 on. It could have contracted to build public facilities at home and overseas, creating private jobs in the process.

The United States during the New Deal from 1933 to 1938 did increase spending — but not enough to fill the enormous shortfall in demand created by the long Depression.

Finally, the Second World War came (1939-1945) and surging defense spending and the mobilization of 12 million men for the war created full employment and supported the U.S. economy for years afterward.

Conclusion

The 2020s aren’t the 1920s. There are financial guardrails that did not exist before the New Deal, although some are trying to dismantle them. That said it will be politically difficult to cut spending on public works, social and health insurance.

Probably the stock markets will continue to function even when stocks come down from today’s “frothy” highs. Despite higher tariffs, there is unlikely to be another trade war as punishing as the one that began with the Smoot-Hawley Trade Act of 1920.

Wars in Ukraine and the Middle East and tensions in Asia probably are not as dangerous as the bloody wars in Russia, Eastern Europe and Turkey in the early 1920s. Transformative new technologies like AI are unlikely to increase unemployment quickly.

Hopefully, the United States with its enormous real resources will be more farsighted than it was in the 1920s. But the 2020s look enough like the earlier era to be very, very frightening.