GREAT DEPRESSION PART ONE
This 1920s Hudson, photo courtesy of the Hudson Essex Terraplane Club, represents the high water mark for the legendary white triangle, at least in terms of production numbers. With the luxury of hindsight and from the perspective of what seems to be the early stages of the Great Depression part two, it also represents the beginning of the end for the American automobile industry.
The seeds for the economic maelstrom that was the Great Depression were planted in the rise of the Federal Reserve and in the draconian policies instituted by the Wilson administration during World War I. They were watered with capitalism awash in cash derived from loose fiscal and credit policies that allowed the consumer to live beyond their means and the industrialist to expand beyond the previous constraints of profit margins.
In addition there was an increasing abandonment of the concept that with great wealth and power there came great responsibility. By 1931, there was also an increasing reliance on governmental assistance to keep poorly managed companies afloat in an effort to avoid financial collapse.
During the 1920s, as in the 1990s, it seemed as if the good times would never end. Speculators and lack of regulation pushed the value of companies built on the shifting sands of low interest loans and that were void of tangible assets free of encumbrances to unsustainable heights.
Companies that specialized in two relatively new industries and supportive technologies dominated the hit parade for speculators – radio and the automobile.
However, for the astute investor it was obvious the veneer of prosperity was very thin indeed. This was especially true in rural areas where the post war collapse of agricultural prices fueled the closure of more than 5,000 banks during the 1920s.
As a city increasingly dependant on one industry Detroit was particularly vulnerable to economic fluctuations. From 1920 to 1930, before the economic implosion of the Great Depression, there were six periods where employment fell to less than fifty percent.
So, by the time of the generally accepted catalyst date for the start of the Great Depression, October of 1929, the city of Detroit was in a precarious financial position. Compounding the cities financial problems were the near complete closure of Ford Motor Company during late 1927 and early 1928 as the company switched from Model T to Model A production, an event that cost Ford employees fifty million dollars in wages.
Compounding the cities problems were the fact that most Ford manufacturing facilities were located in surrounding communities depriving Detroit of the tax revenue. However, the majority of Ford workers resided in Detroit which left the city in a precarious situation to meet the growing needs of unemployed workers.
In Thursday’s post I will provide historical perspective to the concept that a bank, or company is to big to fail as well as the consequences of the federal government stepping in to keep failing institutions afloat by examining the rise of the new Deal and collapse of the auto industry during the period 1931 to 1933.
