During the Great Depression of the 20’s/30’s, many people lost jobs and went poor, so does this mean some people got stinking rich? If all the wealth was removed from normal society it must have all ended up somewhere else, right?
I know that inflation soared, but in some parts of the world it didn’t rise as much. So were some people during the depression laughing all the way to the bank, while other suffered?
To escape the depression of The Depression our parents (or grandparents) would go to the movies. While folks stood in breadlines the Hollywood stars (and successful Producers and Directors) could afford pretty much anything.
Inflation didn’t soar here. The dollar became dearer.
Where did the wealth go? A portion of that wealth was created by margin accounts. Back then you could buy $100 worth of stock for $10. The rest was on your margin account. Today we call that leverage. So 90% of the money (or, some of the money) that went to buy stocks didn’t exist to begin with.
It’s not that people got rich off the GD, it’s that they were already rich in the first place. Many people believe it was the stock market that caused the GD, but their were many factors also, one of which was the unequal distribution of wealth.
During this time 10% of the population controlled 87% of the wealth. Once the banks started getting shaky, these people pulled all their money out just to be safe. Well, this is a huge amount of money that got pulled out of the economy at once. Then once the market was about to go, the major investors pulled out about $30 Billion in a matter of weeks.
And, as far as people laughing all the way to the bank? Well, most of if not (at one point) all the banks were shut down, so no, no one was laughing all the way to the bank.
Ford was probably one of the few people that made it easily through the GD.
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Certainly some people survived the depression comfortably, but they were primarily people who had money before it hit.
In effect, the economy stopped. Unemployment was high, leading to low sales since workers couldn’t afford much, which lead to more unemployment. The government under Hoover thought the best thing would be to cut spending to balance the budget, instead of pumping money into the economy to create jobs. And there were few “safety net” programs.
Few people got rich because there were few ways to get money. Real estate, for instance, dropped in value. Commercial real estate was problematic since there were practically no businesses expanding. Banking didn’t work because there were a large number of loan forclosures, and few new loans. Forget the stock market – no one was willing to invest in it at all. You may have been able to invent a new product, but there were few buyers.
Eventually, the government under Roosevelt pumped money into the economy and things began to improve (though the economy wasn’t exactly strong until WWII – where the government pumped even more money into the economy).
Doug Bowe is right to say that inflation wasn’t the problem, but it is a little confusing to say that the dollar “became dearer”. This gives the impression of a changed value of the dollar wrt other currencies. In fact there was deflation - the money price of goods and assets fell over a period of years.
The way to get rich in such times? Being lucky enough to start the depression highly liquid - holding lots of cash, in notes, and nothing in real assets. Alternatively, holding fixed nominal interest securities payable by the government. Just by holding still and doing nothing what you could buy with these bits of paper skyrocketed.
The changes meant a lot of idle productive capacity so there was a lot less wealth overall to go around, so it’s not like a few people were suddenly getting a bigger share of the same “cake”. It is true to say that there was a substantial and arbitrary redistribution of wealth, but overall the “cake” was much smaller. A lot of the financial wealth which was held in banks simply disappeared when confidence that banks could pay was eroded.
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The only people who would have made money off of the depression were those who had invested in gold or similar investments right before the stock market crash and then sold before the deflation hit. Wealth can be created or destroyed it is not just moved around.
Remember that wealth is not a fixed quantity, MadHatter. I often think this is the reason that socialist schemes seem attractive: the idea that there’s X amount of wealth in the country, or the world. And it’s unfair for the rich people to have so much of it - if we could simply distribute the wealth more evenly, it would be fair for everyone.
Unfortunately, wealth is created. If we start out with some chocolate, flour, milk, sugar and eggs, and give them to four people, all are equally wealthy.
But the first has no talent at being a pastry chef, and can merely mix the ingredients into an inedible stew. He has now lost some of his wealth. The next may make an ordinary chocolate cake, increasing his wealth. The third may whip his into a superb chocolate torte, increasing his wealth greatly. And the last may trade his to the third person in exchange for marketing the torte to hungry folks elsewhere, with both sharing in the profits.
The OP says:
The answer is no, not right. Some of it simply disappeared.
As Bricker has eloquently pointed out, no. Wealth is not a static amount so easily redistributed.
In fact, what specifically happened in the Great Depression was that most wealth out-and-out disappeared, assuming it had every existed in the first place. A lot of the country’s “wealth” was tied up in stocks, and when those prices sank, that “wealth” just disappeared.
Another example, if you may- if I set fire to your house, you lose a lot of wealth. Is there someone else out there who got richer because your house burned down? No; the wealth was destroyed.
Some were- Joseph P. Kennedy (father to JFK) ‘sold short’ on a boat-load of stock a week before the drop. Needless to say, when the stock market crashed, he made a bundle. But he was an exception; very few people actually got rich off the stock market crash or the Great Depression.
The other posters were correct-the GD period (1929-38) was characterized by DEFLATION-basically,money was worth MORE, while real estate dropped in value. 1$ in 1938 bought more than $5.00 did in 1929. My grandfather was one of the lucky ones-he bought a house in 1933 for $11,000.-in 1924, the original owner paid over $30,000. for it! The people who unloaded their stocks and bonds before the 1929 crash made out like bandits-Joeseph kennedy (father of JFK) bought up bankrupt oil properties for pennies on the dollar. When economic growth resumed in the 1940’s, he became an instant billionaire. Was he tippedoff about the crash? Who knows-it certainly sounds suspicious to me!
I agree, but buying on margin actually was one of the bigger problems with the GD. If you put up the $10 for a $100 stock, you still had to pay that money back, but you said you would pay it with the money the stock made. Well, if the stock didn’t hit $100, you still owed them (banks or merchants) the money. Hence you got yourself one hell of a debt now. To make matters worse, banks and companies bought on margin. Banks even used the people’s money to invest. And when a company lost money due to the stock, they would lay off employees to make up for the difference.
It is noted in history, especially now with the tell-all programs about the past that they never used to have, that many of the already rich became richer by promptly grabbing up distressed properties and companies. Many lost millions on the market, but were well off enough to still remain in the top 1%.
Rockefeller bought the land for Rockefeller Center for a song, then hired construction companies for a fraction of the normal costs, and workers for chickenshit pay. Back then, no one gave a darn if a worker making $1.00 a day doing high cement or iron work died. There were 100 awaiting his job. The conditions were brutal as the company managers knew this, safety conditions minimal, the work hellishly hard and firings frequent. If you got too sick to work, you got fired. If you did not like there being no safety ropes or nets at the top, keep it to yourself or get fired. Union member? Don’t look for a job because companies were real pissed off at unions.
The wealthy capitalized like crazy, grabbing up farms, companies, mines, distressed stocks, banks for pennies on the dollar and valuable things like antiques. A grand piano, bought for $1000 could sell for $10, $600 cars could be had for $6.00, bread was 2 cents a loaf, plus farmers who still produced sold their goods by the ton at a loss just to get enough money for next years crops. Several of the Big Guys grabbed up millions of dollars of now prime stock for pennies on the dollar.
Quite a few people made out real well in the Great Depression. Henry Ford thought depression was good for the country because it cleaned out the riffraff. At least he did, until he discovered that the riffraff no longer bought his cars and he had to shut factories down.
The nation returned virtually to slave labor. It was a buyers market. Major banks today owe much of their strength to grabbing up homes, farms and property from people who could not pay off their loans.
Like they say, the rich get richer and the poor get poorer.