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Famed American novelist F. Scott Fitzgerald could not have anticipated what was on the horizon when he penned The Great Gatsby in 1925. Fitzgerald was no prophet, but he seemed to have an innate sensibility that allowed him to step outside of culture of the American Jazz Age and assess its foibles and failures with a critical lens. Fitzgerald’s novel details the wastefulness and frivolity of Tom and Daisy Buchanan, who in many ways function as the consummate symbols of their time. He writes: “They were careless people, Tom and Daisy — they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made” (187-8). Historians agree the cultural attitudes and habits of 1920s society exacerbated deeper domestic problems that contemporaneously formed and flourished in the years leading up to 1929. In his book The Great Depression: America, 1929-1941, Robert S. McElvaine describes the myriad of socioeconomic, political, and market forces that culminated in what would become the most jarring domestic crisis in modern American history. Further, he argues that the “maldistribution” of wealth was the “taproot” of the Great Depression. For McElvaine, the cavernous gap between rich and poor was the single most important factor (50).
Prior to explaining the specific economic factors that contributed to the Depression, it is important to first examine the cultural attitudes and habits of the twenties that created an environment which enabled market forces to spin out of control after the Crash of 1929. For one, the very definition of what it meant to be “American” shifted dramatically during the post-World War I years. Americans moved away from the Protestant work ethic, which valued thrift and self-sacrifice, to a set of new capitalistic virtues rooted in greed, rugged individualism, and at times, hedonism. The origins of American democracy seemed to be built on a foundation of self-reliance and rationalism, yet the twenties were marked by a “a “high degree of self-centeredness and emphasis on financial gain” (McElvaine 42). The goal for many Americans was to get rich quick, as evidenced by an article in Ladies Home Journal, entitled “Everyone Ought to be Rich.” McElvaine explains that Americans seeking wealth saw it as their predestined right, a new form of Manifest Destiny.
The new mindset of Americans within this acquisitive ethic translated into a marked shift in lifestyle. Americans of the twenties seemed to be wrought with carelessness and wastefulness, a testament to their unabashed “live for today” attitudes (McElvaine 41). It was not too much of a challenge to sell the concept of credit to Americans affixed in the present; however, McElvaine argues that there was some coaxing involved: “Convincing Americans to buy now and pay later required a reversal of many traditional American values” (40). Advertisers lured people to consume rather than save and helped shepherd the rise of credit. New products and services left no dearth of opportunities for Americans to buy now—and worry about the consequences later. The rampant materialism that arose during the twenties represented America’s shift to a consumer society. On the surface, it truly was a “New Era” of prosperity and optimism (Hovde & Meyer). Americans seemed possessed by the allure of the stock market, which to them functioned more like a game than an actual economic entity. The nation’s new rich—Meehan, Livermore, and Mitchell—had all accrued wealth from the stock market, and thus served as points of aspiration for everyday Americans. According to the PBS documentary The Crash of 1929, publicity campaigns made the stock market look “exciting.” For example, the National Bank began to mass-market stocks at middle Americans during this era. Stock values rose for nine straight years (Hovde & Meyer).
Still, despite widespread enthusiasm for the stock market, only 4 of 120 million Americans owned stock in 1929; only 1.5 million of those people had enough stock to require the assistance of a broker (McElvaine 43). In general, stock holders were wealthy enough to speculate—and many did. One of the fundamental problems at this time was the unbridled speculation dominating the market. Buying on the margin, a “financial fantasy in which one could get rich quickly,” created an unstable economic situation (McElvaine 42). And when the Federal Reserve Board lowered the rediscount rate to 3.5 percent in 1927, the scenario worsened. Writes McElvaine: “It seemed too good to be true. It was” (44). Hoover would occasional admonish Americans, articulating the dangers inherent in speculation, but his hands were tied. Deflating the bubble seemed an impossible task. Besides, for the nation’s leaders, there was no wavering from laissez-faire capitalism: “Economics was taken as a matter of faith” (McElvaine 29).
The nation’s overall adherence to supply-side economics and laissez-faire capitalism was perhaps the primary economic factor causing the Great Depression. American businesses grew and expanded because the Coolidge and Hoover administrations did nothing to stop them. After all, the free market mentality was the “crown jewel” of Coolidge Prosperity (McElvaine 37). As businesses flourished, production naturally increased. The result was an environment that fostered mass consumption. There was also an unprecedented rush into corporate mergers. By the end of the twenties, approximately two-thirds of the nation’s industrial wealth had passed from individual ownership to the ownership of large conglomerates. Two-hundred corporations controlled half of all American industry (McElvaine 37).
But there was more to the picture than the high-rise offices on Wall Street. Economic problems were also mounting on farms across the country. The twenties marked a shift from agriculture to manufacturing, rendering Jefferson’s agrarian ideal somewhat irrelevant. The economy was beginning to depend more on wage labor as part of a New Frontier of urban industrial capitalism. McElvaine contends that the most basic problem facing American farmers was the “chronic overproduction” of their commodities (35). World War I demanded unparalleled production, but eventually, excess supply failed to meet its own demand. After the war, “the success of wartime stimulation came back to haunt the nation’s farmers.” Despite the era of Coolidge Prosperity, agriculture in the 1920s was “falling behind” the rest of the economy (McElvaine 36-7). In sum, the dreary agricultural state deeply tainted the economy.
The greatest of all economic factors was what McElvaine refers to as the “maldistribution” of income and wealth. Productivity was increasing faster than wages, and thus much of the benefits of economic prosperity went to profits and dividends (McElvaine 39). Millions of Americans reaped the awards of the New Era, however they did so in very unequal portions. In 1929, the top 0.1 percent of American families (24,000 in total) had an aggregate income equal to the bottom 42 percent, comprised of 11.5 million families ( McElvaine 38). The money at the top was increasing faster than any other group. Writes McElvaine: “No cause of the Great Depression was of larger importance” (38).
The Stock Market Crash of 1929 might be viewed as the catalyst that ignited several intertwined cultural and economic factors. “The cold wind that swept through lower Manhattan in October and November 1929 lowered the economy’s resistance to the point where already existing defects could multiply rapidly and bring down the whole organism” (McElvaine 49). However, some business leaders adherent to the capitalist system did not view the initial crash as inherently bad. Andrew Mellon told Hoover the panic would serve as an important moral and economic lesson to “careless” Americans, much like Fitzgerald’s Daisy and Tom: “It will purge the rottenness out of the system. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people” (McElvaine 30). The panic and subsequent Depression had much deeper ramifications. From 1929 to 1933, the Gross National Product dropped 29 percent. Banks failed. Families suffered. The nation was crippled. In the end, Mellon was wrong. Picking up the pieces of the American economic system was a task that took a second world war—and not the efforts of more “competent” business leaders.
Fitzgerald, F. Scott. The Great Gatsby. Simon and Schuster: New York, 1925 (1995).
Hovde, Ellen and Meyer, Muffie. The Crash of 1929 [film]. PBS Video, 1990.
McElvaine, Robert S. The Great Depression: America, 1929-1941. Three Rivers Press: New York, 1984.
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