5 Steps to a 5 by Daniel P. Murphy

Author:Daniel P. Murphy
Language: eng
Format: epub
Publisher: McGraw-Hill Education
Published: 2017-11-10T05:00:00+00:00

* * *

American Economy of the 1920s: Roots of the Great Depression

The vast majority of Americans in 1929 foresaw a continuation of the dizzying economic growth that had taken place in most of the decade. In his inauguration speech, newly elected president Herbert Hoover reemphasized his campaign promise that it was the goal of the Republican party to permanently wipe out poverty in America. In early September 1929, the average share of stock on the New York Stock Exchange stood near 350, a gain of nearly 200 points in a little over a year.

However, careful observers of the American economy noticed several disturbing trends that only seemed to be increasing. These included the following:

1. Agricultural problems. Farm prices were at a record high during World War I, dropped after the war, and never recovered. Many farmers were unable to pay back bank loans they had acquired to purchase land, tractors, and other equipment; many farms were foreclosed, and, in farm states, over 6,200 banks were forced to close. Legislation to help farmers had been passed by Congress, but bills to help the farmers were vetoed by President Coolidge on two occasions.

2. Installment buying. As stated in the previous chapter, large numbers of Americans purchased automobiles, refrigerators, vacuum cleaners, and similar household products on credit. Many Americans simply did not have anywhere near enough cash to pay for all they had purchased. The money of many families was tied up making installment payments for three or four big-ticket items; this prevented them from purchasing many other items available for sale. In 1928 and 1929, new goods continued to be produced, but many people simply could not afford to buy them. As a result, layoffs began occurring in some industries as early as 1928.

3. Uneven division of wealth. America was wealthy in the 1920s, but this wealth did not extend to all segments of society. The gains made by wealthy Americans in the 1920s far outstripped gains made by the working class. By the time of the stock market crash, the upper 0.2 percent of the population controlled over 40 percent of the nation’s savings. On the other hand, over three-quarters of American families made less than $3,000 a year. Problems that could develop from this situation were obvious. The bottom three-quarters of families were too poor to purchase much to help the economy to continue to flourish. Furthermore, at the early signs of economic trouble, many of the wealthiest Americans, fearing the worst, curtailed their spending.

4. The stock market. There were cases in the late 1920s of ordinary citizens becoming very wealthy by purchasing stock. Some of these people were engaged in speculation, meaning that they would invest in something (like the previously mentioned Florida lands) that was very risky, but that they could potentially “make a killing” on. Another common practice in the late 1920s was buying shares of stock “on the margin.” A stockbroker might allow a buyer to purchase stock for only a percentage of what it was worth (commonly as low as 10 percent); the rest could be borrowed from the broker.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.