The Stock Market Boom
The boom of the 1920s was based on selling more and more goods. But by 1929 US industry was running out of customers. Better off Americans could not go on spending forever: there was a limit to how many radios people could buy and US industry could not sell abroad because other countries had put up tariffs in retaliation to the USA. By 1929 these was a growing surplus of manufactured goods and large numbers of car workers were unemployed.
The boom of the 1920s was also based on credit. The public was pressured by advertising to buy more and more and to use hire purchase to pay for it. Hennery Ford used a slogan ‘Every American home should have one” to try and persuade people to buy his cars. He then changed it to ‘Every American home should have two’. It was a sign of desperation. People could not go on buying forever and eventually debts have to be repaid.
As US industry boomed, so did company shares on the stock market. Prices of shares went up, year after year. This was based on confidence that the boom would last. Speculators brought shares, hoping to make easy money. Some people borrowed money to buy shares; others bought ‘on the margin’ that is, only paying 10% of their value, hoping to make enough money to pay the full price later. People did not realize that buying a share was a gamble and that they could lose all of their money.
The situation was made worse because there were almost no controls on the buying and selling of shares, or on the setting up of companies. Shares could be bought on street corners and many people sand their life savings into the stock market. Some companies did not actually manufacture anything, but just bought and sold shares. One company that claimed to be an airline was actually a railroad. Another company sold land in Florida, but did not say that the land was swamp and uninhabitable. Many people bought the land thinking that they would be able to build homes on it. In fact some companies did not exist at all. They used their name to attract investors and simply took their money. A number of bogus aeroplane companies were set up. But as long as there was confidence, the boom would last. As long as people went on believing that the prices of shares would go on rising, they would keep on investing and the governments of Presidents Harding and Coolidge made no effort to intervene or to regulate the buying and selling of shares.
Although people in the new industries found themselves getting better off, during the 1920s the wages of many workers did not rise. In the old industries they actually fell. More and more money found its way into the pockets of fewer and fewer people. This meant that the gap between the very rich and very poor grew. Eventually there were fewer and fewer people who could actually afford to go on buying.