N. 76 - Aprile 2014
(CVII)
The Great Depression of 1929
The fall of Wall Street
di Antonio Anelli
The
twentieth
century
reveals
the
break-down
of
socio-economic
equilibrium
because
of
the
great
depression
of
1929.
In
the
thinking
of
John
Maynard
Keynes
postulates
of
neoclassical
theory
are
revealed
unable
to
explain
and
solve
the
problems
arising
as a
result
of
the
Great
Depression. It
traces
the
logic
sequence
“manias
,
panics
and
crashes
“
and
the
financial
crisis
in
the
real
economy
became
soon
the
crisis
of
production
and
trade.
Emerges
,
therefore
,
the
crucial
role
of
economic
policy
in
the
definition
of
tools
for
the
growth
and
stability
of a
country.
In
the
U.S.,
during
the
Great
War,
federal
spending
grows
rapidly
until
it
reaches
the
triple
tax
revenues,
despite
the
strong
growth
in
income
taxes
(tax
on
top
earners
rose
from
7
percent
in
1913
to
77
percent
in
1916).
In
1920,
the
government
embarked
on a
policy
of
severe
spending
cuts
to
ensure
a
balanced
budget,
causing
a
deep
recession.
Unlike
European
countries
where
serious
human
and
material
losses
recorded
in
America,
the
return
of
the
soldiers,
their
reintegration
in
the
labor
force
and
the
post-war
industrial
conversion
for
the
production
of
consumer
goods
they
quickly
exit
the
United
States
from
recession.
The
growth
is
driven
by
industry,
with
the
automotive
sector,
at
the
top,
the
sectors
connected
to
it -
metallurgical,
petroleum,
rubber
-
and
the
construction
industry.
The
Twenties
were
characterized
by
strong
productivity
growth
of
43
percent,
also
the
result
of
investments
developed
during
the
war,
which
translates
entirely
in
profit
growth,
given
the
slow
wage
growth
and
the
low
bargaining
power
of
workers.
In
turn,
the
profit
growth
stimulates
new
investment
and
the
expansion
of
production,
producing
new
technological
innovations
and
productivity
improvements
in a
kind
of
virtuous
circle
in
terms
of
entrepreneurship.
In
the
post-war
U.S.
policy,
thanks
to
the
three
Republicans
(Harding,
Coolidge
and
Hoover),
acts
in favor
of
large
companies,
favoring
the
industrial
sector,
banking
and
finance.
On
the
fiscal
front,
Harding
(1920-1923)
and
Coolidge
(1923-1929)
dramatically
reduce
your
income
taxes,
ending
a
period
that
had
opened
with
the
entry
into
war
and
characterized
by a
heavy
tax
burden,
due
to
the
extraordinary
demands
of
financing.
The
maximum
tax
rate
on
income
is
raised
to
25
per
cent
in
1925,
on
the
grounds
that
a
high
tax
rate
on
high
incomes
economy
slows
and
reduces
the
overall
tax
revenue.
In
addition
to
these
measures,
the
willingness
to
quickly
reduce
the
debt
incurred
during
the
war
leads
to a
sharp
reduction
in
public
spending
(which
will
arrive
in
1929
to 3
per
cent
of
GDP).
In
contrast,
a
partial
balance
of
the
fiscal
policy
of
the
central
government,
many
local
governments
actively
intervene,
however,
especially
in
the
field
of
infrastructure
(roads,
electricity,
telephone),
supporting
the
development.
Alongside
the
development
of
the
industrial
sector,
Harding
and
Coolidge
favor
the
growth
of
banking,
finance
and
insurance
(many
companies
double
and
triple
their
size.
On
the
monetary
side,
the
Federal
Reserve
expanded
credit,
with
a
policy
of
low
interest
rates,
low
reserves
and
growth
of
the
monetary
base.
The
credit
facility
and
the
expansion
of
the
real
economy
will
also
impact
positively
on
the
financial
markets
that
make
strong
gains.
However,
because
of
fears
of
an
excessive
speculation
at
Wall
Street
in
1928,
the
Federal
Reserve
reverses
monetary
policy,
by
raising
interest
rates.
The
anti-union
policy
that
results
in a
strict
legislation
against
workers
contain
wage
and
widens
the
measures
introduced
in
times
of
war
, in
the
name
of
national
interests
and
the
fight
against
the
military
intelligence.
The
only
workers
who
benefit
from
the
productivity
gains
are
specialized
ones,
with
the
crucial
tasks
in
the
production
process.
For
the
majority
of
unskilled
workers
increased
productivity
and
mechanization
result
instead
in
working
conditions
and
wages
always
the
hardest.
The
miners’
union
sees
its
membership
declining
from
500,000
in
1920
to
75,000
in
1928.
During
the
same
period,
the
American
Federation
of
Labor
drops
from
5.1000000
to
3.4000000
members.
The
anti-immigration
policy
(so-called
North
American
isolationism)
operated
by
the
United
States
had
as
its
main
purpose
to
act
in
defense
of
national
employment,
Coolidge
stiffens
the
anti-immigration
policy
with
the
Immigration
Act
of
1924.
The
law
sets
a
limit
to
the
migratory
flows,
setting
a
quota
of
new
immigrants,
for
each
country
of
origin,
accounting
for
2
percent
of
immigrants
in
America
at
the
1980
census.
Mass
immigration
from
Europe
during
the
first
twenty
years
of
the
century,
therefore,
decreases
sharply.
For
Asians
and
Indians
is
also
completely
prohibited
immigration.
In
some
states
are
then
also
taken
discriminatory
measures
of
an
economic
nature,
such
as
in
California,
where
in
1913
he
was
introduced
a
rule
that
prevents
non-American
citizens
to
own
land
or
rent
for
a
period
exceeding
three
years.
Subsequently,
similar
laws
are
passed
in
11
other
states.
During
the
Twenties,
the
Republicans
had
pressed
for
the
defense
of
domestic
enterprises
through
tariffs
on
imported
goods.
In
1922,
before
there
is a
law
in
this
direction
and
in
the
presidential
campaign
of
1928,
Hoover
insists
on
increasing
prices
for
agricultural
products,
which
,
according
to
the
presidential
propaganda,
would
have
to
accompany
a
reduction
of
tariffs
on
industrial
products.
In
May
1929,
the
House
of
Representatives
instead
approved
a
law
raising
tariffs
on
both
agricultural
products,
both
on
the
industrial
ones
(the
law
then
goes
to
the
Senate
in
March
and
became
law
on
June
17,
1930).
In
September,
even
before
its
final
approval,
the
President
Hoover
receives
notes
of
protest
by
leading
economists
and
politicians
and
the
business
world
(including
Irving
Fisher,
Paul
Douglas
and
Henry
Ford)
and
threats
of
trade
retaliation
of
23
partners
U.S.
trade.
In
May
1930,
the
Canada
imposes
new
tariffs
on
American
and
European
countries
are
redirecting
their
commercial
relations
with
new
partners,
with
a
larger
overall
closure
in
international
trade.
Between
1929
and
1933,
U.S.
imports
fall
by
66
per
cent
and
exports
by
61
per
cent,
accompanied
with
a
decrease
of
50
per
cent
of
GDP
(total
,
however,
in
1929
,
imports
up
4.2
percent
of
U.S.
GDP
and
exports
5.0
percent).
The
policy
of
duties
and
tariffs
will
reverse
only
after
the
Second
World
War
in
December
1945
(following
the
Bretton
Woods
Agreement
of
1944)
and
the
establishment
in
1947
of
the
GATT
(General
Agreement
on
Tariffs
and
Trade
-
General
Agreement
on
Tariffs
and
trade)
of
the
1950,
which
then
led
to
the
creation
in
1995
of
the
WTO
(World
Trade
Organization
-
World
Trade
Organisation),
whose
main
purpose
is
to
liberalize
international
trade.
Overall,
the
Twenties
are
characterized
by a
strong
growth
in
the
real
economy
and,
especially
in
recent
years,
the
financial
markets.
At
the
social
level,
the
jazz
music,
the
advent
of
radio
and
the
mass
production
of
automobiles
(the
Ford
T
sells
15
million
copies)
radically
transform
society
and
lifestyles
giving
birth
to
the
American
way
of
life.
At
the
same
time,
growing
inequality
and
discrimination,
economic
and
social.
In
1920,
approved
the
alcohol
prohibition
law,
which
prohibits
the
production,
trade
and
import/export
of
alcohol,
generating
a
large
black
market
controlled
by
organized
crime.
In
1929,
the
richest
1
percent
of
the
population
owns
40
percent
of
the
national
wealth.
Between
1923
and
1929,
the
poorest
93
percent
of
the
population
experiences
a
loss
of 4
per
cent
of
disposable
income
per
capita.
At
the
sectoral
level,
agriculture,
textiles
and
energy
sector
are
in
trouble
during
the
Twenties.
Agricultural
land
lost
between
30
and
40
percent
of
their
value
between
1920
and
1929.
The
share
of
national
income
accruing
to
farmers
falls
15-9
per
cent
during
the
Twenties.
In
1929,
the
per
capita
annual
income
of
agricultural
workers
is $
273,
compared
to
the
national
average
of
750.
In
the
industrial
sectors,
the
process
of
mechanization
expels
200,000
workers
a
year
from
the
manufacturing
process.
More
than
half
of
Americans
live
below
the
poverty
line.
On
the
other
side,
people
who
declare
an
income
of
over
$
500,000
rose
from
156
in
1920
to
1,489
in
1929,
an
unprecedented
rate
of
growth,
which,
however,
affect
less
than
1
percent
of
the
national
population.
In
this
favorable
climate
for
business,
the
stock
market
is
growing
at
sustained
rates
between
1928
and
1929.
The
rise
in
share
prices
is
also
supported
by
the
interest
rates
still
low,
the
credit
facility
and
the
absence
of
regulations
restricting
the
lending
capacity
of
the
banks,
thereby
enabling
speculative
operations.
The
growth
of
industrial
profits,
accompanied
by
optimistic
expectations
about
the
future
performance
of
the
economy,
tends
to
produce
a
climate
of
euphoria
in
the
markets,
reinforced
by
the
statements
of
leading
economists
and
members
of
the
financial
and
industrial
sectors.
The
last
days
of
October,
however,
marked
a
sharp
turnaround,
etched
in
the
memory
of
speculators
in
the
Wall
Street
crash
of
October
1929,
Black
Tuesday.
In
1925
the
real
estate
market
had
reached
a
peak
in
six
years
and
the
Dow
Jones
industrial
average
fivefold
increase
in
the
value
peaking
September
3,
1929
at
381,27.
During
September,
the
market
is
showing
the
first
signs
of
weakness
with
a
reduction
of
17
per
cent
of
the
index.
In
October,
the
prices
go
back
up
to
recover
half
of
the
losses.
But
October
24,
Black
Thursday
(Friday
for
the
European
markets),
the
loss
of
quotations
becomes
more
consistent,
accompanied
by a
strong
growth
in
the
volume
of
trade.
In a
coordinated
way,
the
biggest
bankers
are
beginning
to
buy
major
blue
chips
at
prices
higher
than
the
market
in
an
attempt
to
reverse
expectations,
as
they
had
already
successfully
tested
during
the
crisis
of
1907.
Speakers
in
particular,
William
Durant
(founder
of
General
Motors
and
Chevrolet,
as
well
as
the
Durant
motors,
the
Rockefeller
family
and
other
financial
and
industrial
giants
in
the
hope
of
instilling
confidence.
The
result,
however,
is
only
temporary.
The
markets
reopened
October
28
(Black
Monday)
saw
a
fall
of
13
per
cent
of
the
index.
The
next
day
(Black
Tuesday),
a
new
drop
in
prices
of
12
per
cent,
with
a
record
in
the
volumes
that
will
be
wrought
only
in
1968.
During
Black
Tuesday,
the
collapse
of
the
securities
is
accentuated
by
the
rumor
that
President
Hoover
would
not
veto
the
tax
law
proposed
by
Smoot
and
Hawley
on
the
rise
in
rates.
