During the 1920’s, the North American economy was roaring, but this decade would eventually be put to a stop. In October of 1929, the stock market began its steepest decline to this date in history. Many stock market traders and economists believe and pray that it was a one-shot episode never to be repeated. On the other hand, many financial analysts and other economists believe that the current stock markets are in place to repeat the calamitous errors of the 1920’s. In this paper, I will analyze the causes of the crash and discuss the possibilities of it re-occurring.
In 1914, World War I began. The United States intended on keeping out of the war, but by 1917, it was no longer just their exports involved, but their soldiers too. This struggle was financed by highly inflationary means and even though the U. S. involvement was limited in time, the postwar economy had to adjust to the lack of heavy military payouts. In 1919, after the armed forces were almost completely discharged, business activity took a sharp down fall. However, a postwar boom allowed for a quick rise in business activity that lasted about a year, taking us into the roaring 20’s.
After the postwar inflation came a recession where business was bad, during the second half of 1920. The next year showed a drop in wholesale prices by a third, unemployment rose to nearly five million, industrial outputs dropped by a quarter, businesses were pushed to bankruptcy, and, within some time, hundreds of thousands of farmers were forced off their lands by falling farm prices. Produce such as wheat and wool fell in price by more than a half. Industry eventually recovered, except for farmers, and then came prosperity and a developing economic boom.
In 1923, consumers were finally spending more then they were before the peak of the war boom. Along came installment credit and people were rushing out to buy cars, radios, clothes, intending to pay for them later. A boom in residential housing began, as well as a general increase in manufacturing capacity. With residential growth expanding, construction items such as lumber, bricks, glass and nails underwent an 80 percent increase in consumption. The 1920’s saw a great technological advance.
Mechanical power almost completely replaced manpower in the work force and output per man-hour almost doubled between 1910-1929. At this point in the 1920’s, American’s believed that this soaring increase in the economy would go on forever. The United States had now become a world super power. People started investing in the stock market believing that Using the Dow Jones Industrial Average (DJIA) at the beginning of every year as a measure, the economy has grown in a log-linear fashion since 1897. There have been two major oscillations in the DJIA.
The first major oscillation began in the early 1920s. In the period from 1924 to 1929 the DJIA rose from 100 to 300, just prior to the crash of October 1929. During the 1930’s and the Great Depression, the DJIA reached a low of 42. The second major oscillation was less dramatic. There was an increase from the expected baseline of growth that began in 1958, which lasted throughout the 1960’s but was followed by a dip below the baseline during the 1970’s. Finally, in the 1980’s, the market began to recover. The growth of the eighties took a dramatic rise above the baseline growth.
There was more to the Y2K phenomenon than a computer clich that we have found to be falsely identified. Beyond computers, and beyond the stock market, there are natural cycles that all historical cultural, economic, and political systems undergo. For example, the cycle of 70 years, between 1929 and 1999, is the natural span of a human lifetime. For the most part, the people born before 1929 have now died. They are no longer part of our collective living identity. Most who were taught with the “depression mentality” are now over 40. We are not part of the “current generation.
The Great Depression of the 1930s was a collective trauma which influenced people’s mentality and behavior, but which influence has now diminished. As it has diminished, our confidence in our control over the economy gotten a lot bigger There is a great deal of fear of a crash, yet little is being actually said in the open. People act like they would rather not think about it. Many people are calling upon superstitious beliefs and spurious notions like the popularity of body piercing or some grand cosmic event. Looking at the DJIA trend line, it is obvious that the DJIA is due for a decline.
The question is not whether the stock market will decline, but whether it will survive as a long- term system that is doable for the next century. All systems have a period of growth and a period of decline. The stock market has been growing exponentially, doubling every 15 years or so, for the past century. Like a dinosaur, it has grown so large that the earth can no longer support it. An asteroid impact, they say, led to the extinction of the dinosaurs, but their path to extinction started long before that. Many other animals survived the impact.
In fact, the rate of species extinction on our earth at current dwarfs the rate at the time of the extinction of the dinosaurs. ” The stock market is only viable in a growing economy. Investors do not want to lose money in a shrinking economy. In order to preserve the stock market, we have “grown” the economy in a very deliberate fashion during the 1990’s. Part of this growth is based on world population growth, the development of markets and sources of labor in Third World countries, and the squandering of non-renewable resources and the world ecology.
Over the next twenty years, the population will surpass the limit of supportability, just as the market economy has already passed the limit of support beyond the next twenty years. Petroleum resources in the Middle East will dwindle, and, if not conserved, be exhausted in the first half of the next century. The stock market does not need to fall the same way it happened in 1929 in order for it to fall at all. There are many different things that could pull the market towards a very steep decline. The stock market is one barometer of how people feel abut the economic world they live in and where it is headed.
In 1929, the stock market was perhaps the major barometer, but now it is one of many. In order to get a feel of the market today, you just can’t look at the Dow Jones Industrial Average like you used to be able to. Now, the market is broader and you have to look at the TSE 300, S&P 500, Nasdaq, DAX, FTSE etc. These are only different stock markets. There are also other measures of the economy such as GNP, Employment Rate and the mutual fund indexes and the bond indexes. The stock market, like many things in this world, is a man made system.
There had been stock dating back to the very beginning of time when people had small businesses. There was just no public market giving people a chance to have ownership in each other’s businesses. Now, thousands of years later, we trade stocks in companies, not for the sake of owning them, but because we want to obtain profits from our original stock prices. Right now, it is almost impossible for people to see how strong the international commodity markets are. Our parents and cousins and friends, everyone’s ears are pinned to what goes on in the market every day of their lives.
We need to start teaching more about stock market trading, and with this new expansion of knowledge, we will allow for the market to grow stronger and stronger, but at a steady pace. If the world, consisting of the consciences of over six billion people wants the market to grow, then the market will grow. With international interest and knowledge we can eliminate fraud and stock pooling to raise stock prices. The markets will be more honest, and they will grow at a rate that we need them to, in order to continue with our exceptional economic growth rate.