Skyscraper Hubris – Pride Before A FallSeptember 11, 2014
By – Catherine Cashmore
“Bill, how high can you make it so that it won’t fall down?” reportedly asked financier John J. Raskob, as he pulled out a thick pencil from his draw, and held it up to William F. Lamb, the architect he had employed to design and construct The Empire State Building.
It was the ‘race to the sky’ and it marked the peak of the roaring Twenties. Capturing what is perhaps one of the most exciting periods in New York’s history.
“Never before have such fortunes been made overnight by so many people,” said American journalist and Statesman Edwin LeFevre (1871–1943)
While areas of the economy such as agriculture and farming, were still struggling to gain ground from the post WWI depression, and a large proportion of the population continued to live in relative poverty. Advances in technology, rapid urbanisation and mass advertising accelerating consumer demand, produced an era of such sustained economic prosperity, it led Irving Fischer one of America’s ‘greatest mathematical economists’ to famously conclude that:
“Stock prices have reached what looks like a permanently high plateau.”
“Only the hardiest spoilsports rose to protest that the wild and unchecked speculative fever might be bad for the country.” Wrote historian Paul Sann, in his publication, ‘The Lawless decade.’
“The money lay in stacks in Wall Street, waiting to be picked up. You had to be an awful deadhead not to go get some.”
Land values of course captured the gains, and between 1921 and 1929 lending on real estate increased by 179%, and urban prices more than doubled.
According to research collated by Professor Tom Nicholas and Anna Scherbina at the Harvard Business School in Boston, by 1930 values in Manhattan, including the total value of building plans, contained “only slightly less than 10% of the total for 310 United States cities (Manhattan included) during the same period.”
A staggering figure considering Manhattan at the time, contained only 1.5% of the US population.
Few raised concerns however.
It was believed the Federal Reserve Act, created in 1913 “to furnish an elastic currency” would tame the business cycle and – as the First Chairman of the Federal Reserve Charles S Hamlin put it:
“..relegate to its proper place, the museum of antiquities – the panic generated by distrust in our banking system..”
The National bank runs of the past had been exacerbated because there was ‘no stretch’ in times of crisis, or moderation in the rates of interest.
However, the bulk of lending against real estate over this period was not limited to New York, or to institutions that were members of the Federal Reserve.
Thousands of new banks were setting themselves up in outlying areas and as noted by Elmus Wicker, author of ‘The Banking Panics of the Great Depression’
“..(they) were either operated by real estate promoters or exhibited excess enthusiasm to finance a local real estate boom”
It brought with it a period of high inflation, and coupled with speculation in real estate securities, produced an explosion in the value of construction that would not be equalled until the boom and bust era of the late 1980s.
Read more:
https://catherinecashmore.wordpress.com/2014/09/11/skyscraper-hubris-pride-before-a-fall/