I don’t know how long the sale will last, but if you go to Amazon now, you can get Amity Shlaes’s Calvin Coolidge biography for only $1.99. Considering what a good writer and thinker Shlaes is, I immediately acted on that deal. I’m heading on a trip soon, so it will be one of my travel reads.
Although I haven’t yet read the Coolidge book, thinking about the book got me thinking about what led to the crash in 1929. Here’s what I think I know, and I would greatly appreciate any corrections all of you can offer to bring my thoughts in line with the actual facts. I’m not in a position to check my facts tonight because I’m working on a legal brief that will keep me busy for a while. By the time I can check my facts, I’ll be in the flurry of preparing for my trip (which you will hear about as I travel).
Beginning with the 1920s, when WWI was in the rear view mirror, the Spanish Influenza had burned itself out, and America was gleefully catapulting itself into the Modern Age, the American economy began to rock and roll. There were mini-recessions, there was the disaster that was the Dust Bowl, and there were Red scares, but on the economy generally roared throughout the 1920s. I attribute part of this economic growth to Calvin Coolidge’s philosophy, which was that it was the government’s job to get out of the way. Low taxes, few regulations, and a belief in American enterprise were the name of the game.
As the stock market rose, though, what also became the name of the game was people buying stocks on credit. In essence, they borrowed money to buy the stocks, with the only security being the value of the stocks themselves. (I’m not 100% sure about this fact, so please correct me if I err.)
What formed was a bubble, although it was a bubble floating along the top of a genuinely strong economy. With so much credit floating the stock market, it was inevitable that the market would crash. Left alone, the market probably would have adjusted itself quickly enough. Two things happened, though: The first was Hoover’s inept meddling to “correct” the problem and the second was the collapse of the banking system. Before I get to Hoover’s meddling, with presages Roosevelt’s even worse meddling, I want to talk about the banking collapse.