How were wealthy people affected during the Great Depression?

  • Some of them were wiped out. But not many because most very wealthy people have more than the value of stocks and bonds on which they build their fortunes.

    There is a true story of how one of the richest men in the world at that time survived this stressful period. William Randolph Hearst was totally wiped out as far as his personal portfolio was concerned. But he had a “lady friend” (Actress Marion Davies) who he had given a few million dollars so he would not have to support her with money from his family. She was not heavily invested in the stock market BEFORE THE CRASH. She let him move in with her (when he was technically broke) and until he could reinvest enough of her much smaller portfolio to mostly bank loans to rebuild his fortune once more. So as long as one has some money left, one can invest on the other side of the black hole when securities are dirt cheap, as Herst did with the money he had given her). I just saw an estimate the other day where two of his grand daughters had a net worth of $250 Billion each.

    So some not so rich had their wealth significantly reduced BUT THEY SURVIVED because they sold out before the economy started to really shrink and they still had money left.

    Understand also that the true old money rich had more diverse investments than just in the stock market. Real estate for example. They also had networks of friends and relatives who were still wealthy enough to carry them partly. And this group could afford to lose all investments in stocks and bonds, yet still have enough cash to land on their feet.

    By 1934, DEFLATION of the dollar had replaced all other financial worries — far worse than simple inflation. Anyone on a payroll had their salary cut because the products their money would buy also cost less simply because demand was sliced by as much as 80% in some industries. No buyers means no profit means less pay in the envelope on Friday.

    I did some research on a nationally known scholar several years ago. In his papers was a file containing all of his annual contracts from the nationally prominent university where he was employed. In 1932 his salary was $6000 — a top notch salary at the time for most professors. But by 1934, due to deflation, it went down to $3500. Why? Because the “product” dried up: That university’s students!

    Losing capital investments in market companies usually translates to a greater percentage of the working class being laid off and not being rehired until the war industries started cranking out airplanes and tanks by about 1938–39.

    Many got by on “make work” jobs funded by the government, such as the CCC, WPA, PWA and various government pensions that put printed paper money into circulation. But one of the iron laws of supply and demand is: The more artificial wealth floods into the economy, the less it will buy.

    Paper money is, in reality, an IOU from the government. During most times, that’s fine. Nobody really expects the government to knock on our door with a bag of something truly valuable (like gold or platinum or any commodity and ask you for your cash in exchange for whatever they hav in their bag. But when the economy is shrinking, it requires the bearer to find ways to turn those IOU’s into things with real value — like a car or a bag of groceries. And the more that becomes a problem the more the real value of those commodities go up, not down. To say it another way: The quickest way to DEVALUE any commodity WHETHER A BETTER MOUSETRAP OR A COLLEGE DEGREE or a bag of groceries is to make it easier for a person to obtain those things through work!

    When I was in college in the 1960’s, there were no student evaluations of faculty and there was no such thing as grade inflation where nearly everyone got a B or A. Today, those are real problems as far as their lowering academic standards and devaluing the worth of a college degree because far more people have obtained college degrees than they had during the 1950’s or the 1960’s. So having a college degree means far less and the colleges have to do something so their students don’t melt away. So they tell everyone they are at least “B students”. In the really old days, the richest young men who had the money to attend Harvard or Yale but who would never really their degree to get a job, earned what was politely called a “gentleman’s C”. Now everybody has a B average and it is not possible to determine whether the best student is hired for the job, or, it’s just that his daddy owns more oil wells!

    But of the three American classes, the upper class were hurt the least and the working or chronically unemployable classes were literally on breadlines run out of charity soup kitchens. Most of the white collar class had enough savings or steady income from pay checks to survive until the worst part of the Depression had rebounded. But the wealthy who had extra sources of income, were taxed as much as 95% of their earnings by the end of World War II just so the government could soak up the excess cash. And the ubiquitous War Bond drives took currency out of circulation, thereby increasing the buying power of the paper dollar.

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