In the Roaring ’20s, the American economy seemed to be doing great (don’t forget the “seemed”). The economy ballooned at an annual rate of seven percent from 1922-1927. Motor vehicles became the new norm; by the time that 1927 rolled around, “Ford had sold 15 million Model T’s.” In 1930, most movie theaters had been renovated to include sound in previously silent films. Behind the scenes, however, consumer debt “rose 2 ½ times faster than personal income from 1920 to 1929.” In addition, “[u]nion membership fell from 5 million in 1920 to 3.5 million in 1929.” American economics was teetering on the edge of collapse and, in October of 1929, a catalyst occurred: the U.S. Stock Market crashed. Some might blame the failure on finances and, in many ways, that assumption is true. As the American economy sunk to new lows, however, how much degradation can be credited to emotion?
In a boom-and-bust economy, success often depends on consumer trends. As described by historian H.W. Brands, Progressive-Era-capitalism meant that “[someone’s] fate could be determined by a rate war on the railroads or a change in tastes for shoes.” With consumer confidence, therefore, the economy (kind of) worked. People invested, banks cashed on deposits, and the system worked relatively smoothly. Because the American economy relied on consumers’ emotions as financial machinery, however, consumer panic resulted in financial failure. “[I]n late 1930,” historian David Kennedy discusses, “fear licked like fire through a house of cards.” All over the country, “[m]obs of shouting depositors shouldered up to tellers’ windows to withdraw their savings.” At first, most of America’s main banks weren’t disastrously affected; “on December 11, 1930, [however,] it struck close to the central nervous system of American capitalism when New York City’s Bank of United States closed its doors.” By then, panic had brought the banking system to its knees.
Today, the American economy still relies heavily on consumer confidence and emotion. During the COVID-19 pandemic, for example, consumer fears fueled business trends. As the economy ground to a halt, people supported select businesses and over-shopped certain hygienic supplies. As shown by both the Great Depression and COVID-19, panic has always been one of the U.S. economy’s greatest challenges. So, after considering history (both past and recent), do economics rely on emotion? Or, in a twist of considerations, could emotions depend on economics as well?
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