In the uncommonly pleasant summer of 1929, Americans were congratulating themselves for having found a way to unending prosperity. The flow of U. S. goods and services had reached an all-time high, industrial production having risen 50 percent in a decade. Most businesses were satisfied with their profits, and workers were content with the gains in wages and earnings that enabled them to enjoy the luxury of automobiles and household appliances. Farmers grumbled about prices, but it was traditional that they should; anyone could see that mechanical inventions had made life on the farm easier and more productive than ever before. Besides, anyone who really wanted to become rich had to purchase only common stock. The political climate was favorable to the business venturer, then held high in public esteem as the provider of material well-being.
Herbert Hoover, a successful businessman and a distinguished public servant, had been elected to the presidency, and people generally expected him to be a temperate and judicious leader. Equally reassuring was the stability of the economies of western Europe. War damage had been repaired, the gold standard had been restored, and the problem of reparations seemed to be near solution.
Irving Fisher was the greatest American economist of the day. A remarkable figure, Fisher made important contributions in areas of economics ranging from index numbers to monetary theory. His invention of a card index system made him a fortune, and his book on how to eat a healthy diet was a best seller. When journalists wanted to know whether the popular song title “Yes, We Have No Bananas” was good English, they asked Irving Fisher. (The answer, according to Fisher, was yes, if the question was “Have you no bananas?”) Fisher was not shy in making predictions about the stock market. Just weeks before the crash, he argued that “stock prices have reached what looks like a permanently high plateau,” adding that “there might be a recession in stock prices, but not anything in the nature of a crash.” Even after the crash, Fisher wrote that for “the immediate future, at least, the outlook is bright” (Galbraith 1961, 91, 99, and 151).
It is easy now to laugh at such optimism. But should Fisher and others have known better? Were there signs of the impending disaster that should have been heeded? The long history of panics and crises in U. S. history (which Fisher knew well) should, perhaps, have given pause. There also were, of course, weaknesses in the economy, such as the banking system and the agricultural sector, but the economy had expanded rapidly for years despite these weaknesses. Ultimately, whether we believe that Fisher and other optimists were unwise or merely incredibly unlucky depends on what we believe caused the Great Depression, the subject of chapter 23.
World History
