h both taxes and government spending were much lower in proportion) were modified heavily in favor of the well-to-do. Along with material prosperity went a boom atmosphere.
In Galbraith's account, both the boom market of the late 1920s and the following collapse had a sort of precursor or premonition in the great Florida land boom, which collapsed spectacularly--with the help of a couple of hurricanes--in 1926. Of the Florida speculation, Galbraith says that it contained "the indispensable element of substance" (3). By implication, the same could be said of the stock market boom which began to develop in full force in 1928.
By 1928, three crucial elements had come together. Huge amounts of cash were made available both by growing overall prosperity and by the upward concentration of wealth, which placed a greater proportion of all wealth in the hands of those who could easily meet all consumption needs, and thus look for investments for the surplus. An atmosphere of boundless optimism was not only widespread, but almost mandatory. And imaginative new financial instruments had been developed to make investments easier, and in particular to provide additional leverage to investors.
In modern times, the term "leverage" has become most familiar in the form of the leveraged buyout, in which raiders borrow the money to buy a controlling share of a firm's stock. Leverage is, however, a broader concept. Essentially, it applies to any investment made with borrowed money. The result of leverage for the investor is to vastly increase profits--so long as prices go up. Imagine that one puts up half the cash to buy a stock at a p
...