The Great Depression
Promoters, bankers, financiers, speculators, and gamblers, realizing that there was no longer a restraining hand, backed by the sentiment of the country, started the people on an era of mergers and combinations which continued until the panic in the fall of 1929.
They were permitted a free hand. No effective attempt was made to limit or control the securities offered to the investing public, the issue of capital stock and bonds, or to the manipulation of values. As a result there were mergers and combinations of every kind and description-automobile, radio, airplane, moving pictures, financial institutions, chain stores, chain banks, water power, shipping, oil, combinations for buying and selling commodities, and many others. The capital stock of these mergers was immediately placed upon the stock exchange and became the subject of speculation and stock gambling.
Through the use of propaganda and high-powered salesmanship the public was ballyhooed into the purchase of stocks until speculation and gambling became almost universal. until speculation and gambling became almost universal. At the same time this orgy of speculation and gambling was spurred on by so-called college economists, who pictured a coming business millennium. Tons of literature along this line were broadcast throughout the country. Another class of so-called intelligentsia immediately seized the opportunity to foist upon the world every sort of an ism, with the result that the most impractical and dangerous theories of government and of life were dressed up in fine verbiage and disseminated to the people through various channels - publications, lectures, moving pictures, radio.
A spirit of optimism carried everything before it and caused the people to go on a prolonged and delirious spree of speculation and spending, during which they lost sight of the old standards upon which this country has been built - hard work, the sanctity of the home, reverence for church and state, honesty, integrity, and morality. During this delirium the wage earner saw no limit to his earning capacity, the business man no limit to his profits, the speculator and gambler no limit to his ill-gotten gains. Selfishness, licentiousness, greed, and avarice were the order of the day.
The optimism prevailing was contagious and spread to all classes. The spirit of speculation infected even the bankers of the country. The lure of high interest and big commissions swayed their judgment.
The result was great abuses in the extension of credits. The accumulation of great quantities of overvalued collateral in the vaults of banks and financial institutions was the inevitable outcome of this era of overvaluation, overcapitalization, stock dividends, and the pyramiding of paper values. Further, these financial institutions, either directly or through their control or connection with bond and brokerage houses, were responsible to no small degree for turning upon the country a fiood of propaganda and an army of salesmen for the purpose of disposing of the myriad of securities with which the country was being inundated. In fact, the financial institutions were the hub around which these securities were fioated and into the coffers of which the high rates of interest and commissions fell.
A new element of major importance entered into the financial situation. It savored of romance and appealed to national pride. Prior to the World War there had been comparatively few international bankers, although the financial world had been growing more and more internationally minded. However, during the war this growth was rapid, caused by the Government itself handing out to foreign governments with a lavish hand what were known as "war loans." These war loans focused the eyes of the nations of the world upon the apparently inexhaustible supply of money in the United States. Beginning with the armistice and continuing for a number of years thereafter almost every country of the world applied to the banks of the USA for loans, offering high rates of interest and large commissions. This caused the bankers of the United States to have visions of world financial power and overshadowed to a great extent the importance of domestic finance.
Huge foreign loans were made and the bond issues fioated in the United States. It became necessary to form combinations of financial institutions, with huge capital stock, and then resort to the usual propaganda and high-powered salesmanship to dispose of the bond issues. In this way almost every banker and investor was inveigled into the speculative net. Income inequality peaked prior to the United States’ two most severe economic crises – the Great Depression and the Great Recession. At the peak of the stock market bubble that capped the Roaring Twenties, in 1928, the share of income accruing to the top decile peaked at 49.3 percent. The crash that followed set off the cascade of events that would ultimately land the United States in the deepest recession in history.
The flooding of this country with foreign bonds and securities was probably the final straw that broke the camel's back, and the huge financial structure, built on false values and insecure loans, toppled and crashed in October, 1929.
This collapse was the forerunner of the greatest stagnation of business the country has ever experienced. It brought widespread unemployment, a sharp decline in prices to a low level, and a general reduction in wage scales.
In October 1929 the booming stock market crashed, wiping out many investors. The collapse did not in itself cause the Great Depression, although it reflected excessively easy credit policies that had allowed the market to get out of hand. It also aggravated fragile economies in Europe that had relied heavily on American loans. Over the next three years, an initial American recession became part of a worldwide depression. Business houses closed their doors, factories shut down, banks failed with the loss of depositors’ savings. Farm income fell some 50 percent. By November 1932, approximately one of every five American workers was unemployed.
The origins of the Great Depression were complicated and have been much debated among scholars. The initial factor was the First World War, which upset international balances of power and caused a dramatic shock to the global financial system. The gold standard, which had long served as the basis for national currencies and their exchange rates, had to be temporarily suspended in order to recover from the costs of the Great War, but the United States, European nations, and Japan put forth great effort to reestablish it by the end of the decade.
However, this introduced inflexibility into domestic and international financial markets, which meant that they were less able to deal with additional shocks when they came in the late 1920s and early 1930s. The U.S. stock market crash of 1929, an economic downturn in Germany, and financial difficulties in France and Great Britain all coincided to cause a global financial crisis. Dedication to the gold standard in each of these nations and Japan, which only managed to return to it in 1930, only made the problem worse and hastened the slide into what is now known as the Great Depression.
The key factor in turning national economic difficulties into worldwide Depression seems to have been a lack of international coordination as most governments and financial institutions turned inwards. Great Britain, which had long underwritten the global financial system and had led the return to the gold standard, was unable to play its former role and became the first to drop off the standard in 1931. The United States, preoccupied with its own economic difficulties, did not step in to replace Great Britain as the creditor of last resort and dropped off the gold standard in 1933. At the London Economic Conference in 1933, leaders of the world’s main economies met to resolve the economic crisis, but failed to reach any major collective agreements. As a result, the Depression dragged on through the rest of the 1930s.
The presidential campaign of 1932 was chiefly a debate over the causes and possible remedies of the Great Depression. President Herbert Hoover, unlucky in entering the White House only eight months before the stock market crash, had tried harder than any other president before him to deal with economic hard times. He had attempted to organize business, had sped up public works schedules, established the Reconstruction Finance Corporation to support businesses and financial institutions, and had secured from a reluctant Congress an agency to underwrite home mortgages. Nonetheless, his efforts had little impact, and he was a picture of defeat.
His Democratic opponent, Franklin D. Roosevelt, already popular as the governor of New York during the developing crisis, radiated infectious optimism. Prepared to use the federal government’s authority for even bolder experimental remedies, he scored a smashing victory — receiving 22,800,000 popular votes to Hoover’s 15,700,000. The United States was about to enter a new era of economic and political change.
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