You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
154 PART II / THE GREAT REVERSAL<br />
vided, through investment banking channels, by private investors, but the<br />
movement was stimulated greatly by the assistance of the commercial<br />
banks. While much ofthis money was invested more wisely than is generally<br />
regarded, it is true that sums were provided for all sorts of unwise<br />
purposes, from financing reparations payments (in Germany) to building<br />
battleships (in Chile) and removing a mountain (in Rio de Janeiro). By<br />
1931, a nominal amount of$2,383 million invested in South America had<br />
suffered a market depreciation of over 80 per cent; $1,793 million of<br />
European government loans had declined 43 per cent,2 and by March,<br />
1934, approximately $2,930 million foreign loans were in default.3<br />
At home, consumers were discovering the ease of going into debt for<br />
automobiles, radios, furniture and groceries. What is now regarded as<br />
one of the stronger categories.ofassets in a bank portfolio, that is to say,<br />
consumers' paper, was then a new, undigested, and relatively speculative<br />
form of obligation. After the enactment of the Federal Reserve System,<br />
the use of consumer credit grew at an astounding rate. In 1910, of total<br />
retail sales of$20 billion, approximately 10 per cent are estimated to have<br />
been made on· credit. By 1929, half the $60 billion of retail sales in that<br />
year were credit transactions, and of the $30 billion worth of goods sold<br />
on credit in that year, some $7 billion were sold on instalments. 4 Sales<br />
made on open account were financed by the store itself, generally by<br />
resources supplied by the commercial banks; sales made on instalments<br />
were financed through instalment finance companies which in turn discounted<br />
a large part of their paper at the banks.<br />
Thus, so effective had been the smiting of the rock that by 1929 the<br />
United States was overwhelmed by a flood of credit. It had covered the<br />
land.·It was pouring into every nook and cranny ofthe national economy.<br />
Flimsy structures of business-the speculative and trading element-it<br />
carried away on the crest of the wave, while those ofa more substantial<br />
and conservative sort it either submerged or destroyed by undermining<br />
their foundations.
Change language