Wall Street Essay -- essays research papers

In 1938, and in the teeth of the longest and fiercest depression that the United States had ever known, capital spending hit an all time high. That’s right! In 1938 the men who owned America began to pour millions of Dollars into new plant and equipment as if there was no tomorrow. We don’t think much about it today, because it has been a long time since the United States has experienced a real bone jolting economic slowdown. The fact is, however, that the very best time for the industrialist to invest in new technologies is in the middle of a depression. This is because it is at such times that labor, raw materials, and new equipment can be purchased at rock bottom prices. Henry Ford may have jumped the gun a bit. He shut down his River Rouge plant for two years starting in 1932 so that it could be completely rebuilt. Being a bit of a genius, Ford used his time and money to redesign the plant to create one of the most powerful little engines ever built: the Ford V8. Th is engine was so good that it was modified only slightly to equip certain aircraft for use in World War II. It also powered a series of red hot Ford cars all the way through the 1950s. At the same time that Ford was rebuilding his River Rouge plant, Joseph Alois Schumpeter, an Austrian economist who had migrated to Harvard University, was hard at work on a book that would explain the paradox suggested above, namely the timing of business cycles and technological change. In this all but forgotten work one of our most famous economists spelled out the secrets of the business cycle, that is the same old pattern of boom and bust that may be coming back to haunt us now. Many, if not most, American college students know Schumpeter's name because of his work in defense of free enterprise called Capitalism, Socialism, and Democracy. This was not, however, the book that Schumpeter was working on as America slogged through the mean and hungry 1930s. The book published by Schumpeter in 1939 is called " Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process. " Not only is Schumpeter's definitive two volume study of the business cycle not on college reading lists today, but, indeed, it continues to languish in its first edition. The embarrassing truth is that Schumpeter's real masterpiece remains almost unread. The present writer checked out this forgo... ...sions , as Schumpeter explains in Business Cycles, is the long term movement of prices generated by long waves of technological change. What goes up has to come back down. There are those who believe that Greenspan would bring down this bull market gently if he could. Certainly he has tried. It is unlikely that Greenspan’s gentle jawboning will do this, however, since, as Kindleberger points out, when investors are going hog wild in an inflationary stock market they are simply not willing to listen to reason from the lips of central bankers and their like. From Schumpeter's point of view, the underlying cause of the next market crash, would simply be that the long wave of prosperity that began in 1938 is now over. According to Kindleberger's careful history mentioned above the speculative bubble in many past economic crises has often burst as the result of some purely exogenous event. If an army somewhere loses a battle, for example, markets crash as investors run for the exits. The IBD closes its' provocative article mentioned above by suggesting that the infamous Y2K bug might just play the role of the required exogenous force here. Letâ€℠¢s hope that they are wrong for once!