securities, driving the price of existing securities skyward. In other words, a large part of the nation's savings were being used for speculation.
With low taxes and with about 5% of the wealthiest class accumulating nearly a third of the nation's disposable personal income, savings were large. Low corporate taxes allowed big companies to acquire unprecedented cash surpluses. Brokers made extensive and reckless use of this savings market. Through loans, brokers made it easy for investors of even modest means to purchase securities. Investors could "buy on margin," that is, deposit only a small percentage of the total price of a block of securities with the broker advancing the remainder. The idea was, of course, that as security prices rise, the investor could sell, making possible not only repayment of the loan but a profit as well. Oftentimes, brokers would lend up to three quarters of the cost of new securities, requiring investors to deposit only 25% of the value. Not only were brokerage houses willing to lend in the securities market but so, too, were banks and large corporations.
At the same time, the increasingly inequitable distribution of wealth eroded America's consumer base. There was little change in real wages and salaries from 1924 through 1929; consumer demand could not afford to expand enough to encourage industrial expansion.
Nevertheless, America had achieved the number one ranking in the world in terms of national income, agricultural production and industrial growth. Private initiative seemed to work so well that the urge toward public investment were largely viewed as counter-productive.
But by the summer of 1929, the economy, like a giant pyramid scheme, began to collapse upon itself. Skittish investors started to sell, causing a sharp drop in securities prices. Investors on the margins could only cling to a limb and hope for some miraculous economic recovery. But it did not come. Lat...