Just curious what succinct answers you guys had for why the stock market boomed in the 1920s before collapsing in 1929.
Because of inflation.
http://wiki.mises.org/wiki/Great_Depression
And why did credit expand?
It's all in the Wiki mentioned earlier.
My question is: since we were on a gold standard, how was the credit expansion done?
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
I understand that credit expanded, but I'm curious WHY (not how). Why did the US expand credit? Who was to gain?
(I have my thoughts on the matter, but I'd like to see what others think. I just had my 7th grade students take a test on The Depression).
From that Wiki, [bold face by me] :
He pursued an inflationary policy, to finance the war effort for WWI], connected to the interests of the House of Morgan. Another motivation was the attempt to prop up the Bank of England in the 1920s, when it returned to the gold standard with an overvalued pound. To prevent the loss of gold to the States, its governor Montagu Norman secretly convinced Strong to inflate in order to help England. The expansion ended only after Strong's death and the Great Depression followed soon after. In 1928 Strong admitted that "very few people indeed realized that we were now paying the penalty for the decision which was reached early in 1924 to help the rest of the world back to a sound financial and monetary basis" - that is, to help Britain maintain a phony and inflationary form of gold standard.[3] The inflation was also motivated by a desire to help American exporters (particularly farmers), by stimulation of foreign lending.
There you have it. 3 reasons.
I asked so I could brag about my 7th graders. I asked "Why did the stock market boom in the 1920s?" on their test yesterday. This is one of the responses (it's not rote regurgitation from my notes either):
"The stock market boomed because the U.S. inflated their money to go along with Britain after WW1. People thought they had more money than they actually did. People invested money into the stock market that wasn't really there and then when they had to pay back the money they had borrrowed off "on margin" buying they ran out of money".
We must bring this child into the fold.
Mtn Dew: I asked so I could brag about my 7th graders. I asked "Why did the stock market boom in the 1920s?" on their test yesterday. This is one of the responses (it's not rote regurgitation from my notes either): "The stock market boomed because the U.S. inflated their money to go along with Britain after WW1. People thought they had more money than they actually did. People invested money into the stock market that wasn't really there and then when they had to pay back the money they had borrrowed off "on margin" buying they ran out of money".
That's amazing. I didn't know anything worthwhile in 7th grade.
Awesome! we need more teachers like you!
CernelJoson:That's amazing. I didn't know anything worthwhile in 7th grade.
haha, no doubt. 7th grade was about the time I was wising up to the fact that if I was ever going to learn anything worth knowing I was going to have to teach it to myself.
Good to see at least some kids are getting a head start these days.
I use Murphy's PIG book as well as "FDR's Folly" as my guidelines for the unit. The textbook is absolutely atrocious and I tell the kids that every day.
Here's another kid's response:
"The stock market boomed for many reasons in the late 1920s. First, we inflated our currency so the British money was worth more. Second, many people were buying stocks "on margin" which they didn't have enough money for. Lastly, people were way overspen ding on many luxuries".
This kid just came in from a public school. Thank goodness his brains aren't being wasted on the garbage they teach there anymore.
Wow.
If libertarian/anti-statist ideas are going to take hold in society (or any kind of social change, really) it's going to have to be through kids. At the very least, if you can expose them to positions other than the official public school dogma you're doing them a great service.
I think that's one of the main corrupting factors (and goals) of state education; they teach particular interpretations of history as indisputable fact. Anyone who questions those conclusions is told to "go back to school". The ideas Mises presents in "Theory and History" are some of the most important I've learned with respect to understanding society and acquiring knowledge in general.
Also, Glass-Stegall wasn't in effect, so banks could gamble away savings they didn't own.