Sunday, December 07, 2008

More Great Depression Economics

Robert Heilbroner on the Great Depression:

"In retrospect it was inevitable. The stock market had been built on a honeycomb of loans that could bear just so much strain and no more. And more than that, there were shaky timbers and rotten wood in the foundation which propped up the magnificent show of prosperity.


The national flood of income was indubitably imposing in its bulk, but when one followed its course into its millions of terminal rivulets, it was apparent that the nation as a whole benefited very unevenly from its flow. Some 24,000 families at the apex of the social pyramid received a stream of income three times as large as 6 million families squashed at the bottom--the average income of the fortunate families at the peak was 630 times the average income of the families at the base. Nor was this the only shortcoming. Disregarded in the hullabaloo of limitless prosperity were two million citizens out of work, and ignored behind their facade of classical marble, banks were failing at the rate of two a day for six years before the crash. And then there was the fact that the average American had used his prosperity in a suicidal way; he had mortgaged himself up to his neck, had extended his resources dangerously under the temptation of installment buying, and then had ensured his fate buying fantastic quantities of stock--some 300 million shares, it is estimated--not outright, but on margin."

--Robert Heilbroner, The Worldly Philosophers pp. 247-48 (5th ed. 1980)

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