of buying and paying later caught on quickly and created a credit boom in the United States. By the end of the 1920s, “60% of cars and 80% of radios were bought on installment credit.” 11 6 Hicks, John D. Republican Ascendancy, 1929-1933 . New York: Harper & Row, 1960. p.106. 7 Baughman, 78 8 Baughman, 78 9 McElvaine, 330 10 Baughman, 78 11 McElvaine, 41
4 Between 1925 and 1929, the United States “total amount of outstanding installment credit more than doubled from $1.38 billion to around $3 billion.” 12 With the rich lavish spending and investments and the debut of credit, it created an artificial demand for products people could not usually afford. Many bought so much on credit that their wages could no longer go to purchases because they were paying of past purchases bought on credit. Eventually, these artificial demands lead to an unforeseen inevitable downfall of the economy. Even though the debut of credit to the poor and middle-class, the United States still relied heavily upon the rich luxury spending and investments to the keep the economy going. The problem with this practice was that it was did not provide a guarantee of stability because the rich only bought and invested based on their confidence of the United States economy. If the economy took a turn for the worse, the spending and investments would stop altogether. The rich would begin to begin to save their money at excessive levels and invest at an excessive level as well because of the low cost of the stock because of the poor economy. Misdistribution also occurred in big industries. In 1929, “200 corporations controlled approximately half of all corporate wealth.” 13 The automotive industry was thriving in the 1920s. In 1921, the “Ford Motor Company reported record assets of more than $345 million.” 14 Companies such as the “Ethyl Corporation made millions with items such as new ‘knock-free’ 12 McElvaine, 41 13 McElvaine, 37 14 Baughman, 76-77
5 fuel additives for cars.” 15 In fact, most of the industries prospering in the 1920s were in some way linked to the automotive industry or to the radio industry. During this time, there was confidence in the economy. The rich was buying and investing and the poor and middle-class were using credit in unprecedented numbers. The speculative boom in the stock market based on confidence. For instance, “Mr. John Doe could buy 1 share of the company by putting up $10 of his own, and borrowing $75 from his broker. If he sold the stock at $420 a year later he would have turned his original investment of just $10 into $341.25 ($420 minus the $75 and 5% interest owed to the broker).” 16 Investors' became interested in the opportunity to make profits of the caliber, which led to the market rising to extreme high levels. By mid-1929, the “total of outstanding brokers' loans was over $7 billion;” 17 in the “next three months that number would reach $8.5 billion.” 18 At this time, the economy appeared to be flourishing, especially the stock market. The prices in the market began to steadily decline, but it did not deter people from continuing to invest, spend, and buy on credit. Not until October 1929 did, fear began to spread about the stock market. On “Monday October 21, 1929, the stock market prices began to fall quickly.
- Fall '09