The times preceeding the stock market crash of 1929 weren't all that different from today. In fact the similarities are unnerving, many of the political attitudes were even the same. The one question that remains for me is whether the only people who prospered did so by selling short, there must have been other ways to do well?
It was hard to edit the stories below the fold, as a result I didn't include some other interesting stuff. One of the more fascinating anecdotes not included was that, in September 1929, the kid who shined Joe Kennedy's shoes gave Joe some stock tips, Kennedy promptly sold all of his stock. The kid's tip made Kennedy realize that the market had become more speculation then value.
The Political Times
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Many Americans of the 1920s endorsed conservative values in politics and economics. Republican presidents stood for these values, or what President Warren G. Harding called "normalcy ... a regular steady order of things." Under presidents Harding and Calvin Coolidge, tariffs reached new highs, income taxes fell for people who were most well off, and the Supreme Court upset progressive measures, such as the minimum wage and federal child labor laws. Both Harding and Coolidge tended to favor business. "The chief business of the American people is business," Coolidge declared.
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While remaining aloof from international concerns, the United States began to close its doors to immigrants. Antiforeign sentiment fueled demands for immigration limits. Protests against unrestricted immigration came from organized labor, which feared the loss of jobs to newcomers, and from patriotic organizations, which feared foreign radicalism.
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What happened to more critical voices in the conservative era? Radical political activism waned, dimmed by the Red Scare of 1919. Social criticism appeared in literary magazines such as The Masses; in newspapers such as the Baltimore Sun, where journalist H. L. Mencken published biting commentary; and in popular fiction such as Sinclair Lewis's novel Babbitt (1922), an assault on provincial values. Some intellectuals fled the United States and settled in Paris. Progressivism faded. Its most enduring vestige, the post-suffrage women's movement, faced its own problems.
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Distrubution of wealth, reduction of taxes
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The "roaring twenties" was an era when our country prospered tremendously. The nation's total realized income rose from $74.3 billion in 1923 to $89 billion in 19291. However, the rewards of the "Coolidge Prosperity" of the 1920's were not shared evenly among all Americans. According to a study done by the Brookings Institute, in 1929 the top 0.1% of Americans had a combined income equal to the bottom 42%2. That same top 0.1% of Americans in 1929 controlled 34% of all savings, while 80% of Americans had no savings at all3. Automotive industry mogul Henry Ford provides a striking example of the unequal distribution of wealth between the rich and the middle-class. Henry Ford reported a personal income of $14 million4 in the same year that the average personal income was $7505. By present day standards, where the average yearly income in the U.S. is around $18,5006, Mr. Ford would be earning over $345 million a year! This maldistribution of income between the rich and the middle class grew throughout the 1920's. While the disposable income per capita rose 9% from 1920 to 1929, those with income within the top 1% enjoyed a stupendous 75% increase in per capita disposable income7.
A major reason for this large and growing gap between the rich and the working-class people was the increased manufacturing output throughout this period. From 1923-1929 the average output per worker increased 32% in manufacturing8. During that same period of time average wages for manufacturing jobs increased only 8%9. Thus wages increased at a rate one fourth as fast as productivity increased. As production costs fell quickly, wages rose slowly, and prices remained constant, the bulk benefit of the increased productivity went into corporate profits. In fact, from 1923-1929 corporate profits rose 62% and dividends rose 65%10.
The federal government also contributed to the growing gap between the rich and middle-class. Calvin Coolidge's administration (and the conservative-controlled government) favored business, and as a result the wealthy who invested in these businesses. An example of legislation to this purpose is the Revenue Act of 1926, signed by President Coolidge on February 26, 1926, which reduced federal income and inheritance taxes dramatically11. Andrew Mellon, Coolidge's Secretary of the Treasury, was the main force behind these and other tax cuts throughout the 1920's. In effect, he was able to lower federal taxes such that a man with a million-dollar annual income had his federal taxes reduced from $600,000 to $200,00012. Even the Supreme Court played a role in expanding the gap between the socioeconomic classes. In the 1923 case Adkins v. Children's Hospital, the Supreme Court ruled minimum-wage legislation unconstitutional13.
The large and growing disparity of wealth between the well-to-do and the middle-income citizens made the U.S. economy unstable. For an economy to function properly, total demand must equal total supply. In an economy with such disparate distribution of income it is not assured that demand will always equal supply. Essentially what happened in the 1920's was that there was an oversupply of goods. It was not that the surplus products of industrialized society were not wanted, but rather that those whose needs were not satiated could not afford more, whereas the wealthy were satiated by spending only a small portion of their income.
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