The Great Depression: what Finance and the Bible have to say

The Great Depression: what Finance and the Bible have to say

            If economists and businessmen were asked when the economy was at its worst, there could be a consensus that it was the Great Depression. Lasting from 1929 until 1938, the Great Depression was the most significant economic crisis in U.S. history. This year the world is facing the Coronavirus, and people are wondering if the world is going to face yet another recession. The stock market has been spiraling these past three weeks, and every investor is starting to construct a strategy for their long-term financial plan. As a college student, I would never have thought how impactful a pandemic is to the economy and the importance of knowing business finance. Far more, the term "business finance" seems unrelatable because I had an assumption that financing is only for big investors or rich people. However, finance functions as so much more than just putting money in the right place. Finance is the basic tool of business, and therefore when we unravel finance and all that goes with it (such as stock market, capital investments, and wealth), we may find that business finance is essential for our life and future. By relying heavily on the BBC documentary, "The Great Crash of 1929", I will offer insights on the importance of understanding finance as the foundation for investments (particularly stock investments) and further trace how the Great Depression came into effect. In the end, I will also give a reflection on Jon Bloom's article, "the Seduction of Prosperity," and how Christianity had first warned humanity about the greediness that comes after the love of money. From those three sources, I hope that it could be further applied to our implementation of business finance knowledge to the stock market today.

            The BBC documentary, "The Great Crash of 1929," provides a preview of the after-effects when people started to put full trust in the stock market system merely because they took celebrity endorsements as their decision-maker. Before the 1920s, bonds and stock markets were an investment market exclusively for upper-class people. However, in the 1920s, Charles E. Mitchell, an American banker, noticed that bonds and stock markets should be available to the public too. Big star celebrities, such as Charlie Chaplin, started to promote bond and stock investments, making middle-class income people shift their perspective and invest in the market. From there, everybody splashed out on the stock market. The rapid change was so fast that in 1928, the stock value rose 50% in only 12 months. The unbelievably fast growth seems to erase the myth that getting money from engaging stock needs decades to gain profit. People during that time only believed what they wanted to hear. Stories of how a person can change from rags to riches without hard work are the fantasies that people desire to consume. There seems as if there was no more risk associated with stock investments because no one could lose their money. As confidence in the stock market started to grow, people began to invest all of their assets and add borrowed loans from the creditors to invest in the stock market in the hope that they can repay them in the future while gaining profit at the same time. Buying on margin had become a culture.

            However, as sweet as a dream can be, there is always time to wake up and face the reality of life. On Thursday, October 25, 1929, which was now called the Black Thursday, the "Dow opened at 305.85. It immediately fell 9% signaling a stock market correction" (Graham 13), signifying the start of the Great Crash. The market came into great panic, but leading bankers and investors such as John Pierpont Morgan, John Davidson Rockefeller, and Richard Whitney attempted to reassure the public that the stock market is alright. There was a lot of market manipulation involved that the middle class didn't notice because they do not educate themselves with the basic rules of financing. Consumers were not fully aware of their rights and responsibilities that they are involved in, and so the elite took great advantage of it. The bankers' and investors' reassurance was just a temporary solution to the whole problem of the Great Depression.

            In addition to the naivety of the people, the government during the 1920s was not much help either. During the tumultuous time of the economy, the government should have intervened in public market reasoning. There are two main things that the government should have done: maximizing social welfare and promoting general socio-economic fairness. "Without government intervention, firms can exploit monopoly power to pay low wages to workers and charge high prices to consumers. Without government intervention, we are liable to see the growth of monopoly power" (Graham 37). The monopolistic power of a particular company, like the Wall Street case in 1920, had given the tremendous privilege to gain profits without considering the negative impact it had on the public. This profit-only behavior could lead to “diminished resources, stifled innovation, and minimized trade and its corresponding benefits" (Graham 45). If the government had chosen to involve themselves in the problem though creating specific regulations that could directly address the issues, then it could benefit social welfare. Applying price ceiling and flooring to attain a certain equilibrium between consumers and sellers could be one of the solutions. Second, the government should have promoted general socio-economic fairness. The government should establish taxation and welfare programs to reallocate financial resources from the wealthy to the poor. Another example would also be having employment laws to ensure the health and wellbeing of employees.

            After recognizing the lack of knowledge and government intervention during the Great Depression, we must realize too that the undermining cause of the economic downfall was and is still greed. One of the major causes of the Great Depression was the excess expansion of consumer finance in the 1920s. People put so much trust in the stock market that made them borrow a massive amount of loans through creditors. As the Seduction of Prosperity by Jon Bloom had warned us, "Abundance easily obscures our vulnerabilities, giving us a misleading sense of security, and often a false sense of independence. The danger lies precisely in the fact that it doesn't feel dangerous." In addition, Jesus Christ had reminded us, too, in Luke 12:15, "Watch out! Be on your guard against all kinds of greed; life does not consist in an abundance of possessions" (NIV). There is a common belief that prosperity is the key to happy life, but this is not true. Based on the "10 Financial Principles that are Biblical", the fifth and the tenth principles remind us that "contentment is not dependent on wealth," and we must "seek Godly counsel." Everything in this world is mortal, but God is not. If we put our trust in something mortal, then we should also realize that those will have an ending. As Proverbs 23:5 said, "Cast but a glance at riches, and they are gone, for they will surely sprout wings and fly off to the sky like an eagle" (NIV).

            In conclusion, the Great Depression had shown us the danger of putting wealth on top of everything else. When money becomes their god, and greed interplays in it, humans won't be able to discern when enough is enough: "Those who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge people into ruin and destruction" (1 Timothy 6:9 NIV). As a Christian, I am drawn to the wealth of the world, and there is no denying that I want to have more money to have a more significant impact on the world. But the number one goal in my life will still be to glorify God. When you are in right standing with God, and you follow his ways and his principles, then you will be successful. That includes finances. As global markets log some of the sharpest falls in history because of the coronavirus pandemic, some investors have been taking advantage of rock-bottom prices by buying individual stocks. If we decided to invest in this time, we must be discerning and look at the broader picture of a company to make sure that the investment will be beneficial not only in the short-term goal but in the long-term investment too. In the end, we must always remind ourselves that we are flawed human beings, and therefore we are not going to do everything right. However, when we have faith in God and give up as much of that control as we can to him and live a righteous life, then He will make sure that things fall our way most of the time.

Works Cited

BBC2 Documentary 1929. “The Great Crash 1929”. YouTube, 28 Mar. 2020, https://www.youtube.com/watch?v=FXNziew6C9A

Bloom, John. “the Seduction of Prosperity.” Accessed 28 Mar. 2020.

Graham, John R., et al. “Financial Distress in the Great Depression.” Financial Management, vol. 40, no. 4, 2011.

New International Version. Bible Gateway, www.biblegateway.com. Accessed 29 Mar. 2020.