Only Yesterday

Quiet kids, I’m trying to watch Dancing with the Stars….

In the 1920s, a new technology burst upon the scene.

Radio.

It was unlike anything that had ever existed before. Suddenly, you could hear events and people in your living room, even though they were hundreds or thousands of miles away.

God-like. Capturing.

And it captured a nation.  Radio penetration went from nothing to nearly 60% by 1930.  Radio quite literally opened millions and millions of homes to a vision of a world they had never seen before, and all its possibilities.

The radio business exploded in the 1920s. Everyone was in the radio business in one way or another.  There were thousands of radio stocks in the heady Cooledge boom days. You would recognize it. It was just like the dot-com boom of the Clinton years.

In fact, it was disturbingly like it.

Radio also introduced Average Americans to two other phenomena, also a bit disturbing in a way:  credit and stocks.

In 1922, advertising sales on radio totaled $22 million.  By 1929, they stood at $842 million, an increase of 1400% over 7 years.  Consumer demand, fueled almost entirely by credit followed suit. Radio created a demand for products and services; a demand that simply had not existed before.  And the consumer followed, by borrowing.  Debt exploded.

At the same time, a newly ‘aware’ listenership developed a sudden interest in investing in the stock market, a place they had never even known had existed before, and a massive run up in stock values and prices also followed, driven by easy credit and margin purchases of 10%.  (All of this comes from Frederick Lewis Allen’s excellent history of the US in the 1920s, Only Yesterday.)

The book was published in 1931, yet it could have been written yesterday.

The parallels are deeply, deeply disturbing.

Replace radio with Internet, and you could almost be reading today’s Wall Street Journal.

The same way in which a new technology, radio, suddenly drove first an investment bubble in the new technology, an explosion of  ‘sites’, most of them money-losers (everyone and their brother was putting up radio antennae and starting local radio stations. Almost all eventually failed, as they were free or ad driven and did not have the traffic to sustain when the home radio maker got bored or went broke. Sound familiar?)

Then, the content and the mass penetration drove an explosion of both purchasing and investing, all done on credit. (sound familiar again?).  Even home equity loans!

Read this from Allen’s book:

Prosperity was assisted, too, by two new stimulants to purchasing, each of which mortgaged the future but kep the factories roaring while it was being injected. The first was the increase in the installment buying. People were getting to consider it old-fashioned to limit their purchases to the amount of their cash balance; the thing to do was to “excercise their credit.” By the latter part of the decade, economists figured that 15 per cent of all retail sales were on an installment basis, and that there were some six billions of “easy payment” paper outstanding. The other stimulant was stock-market speculation. When stocks were skyrocketing in 1928 and 1929 it is probable that hundreds of thousands of people were buying goods with money which represented, essentiall, a gamble on the business profits of the nineteen-thirties. It was fun while it lasted.

All of this, Allen believes, was driven by the new technology of radio, and radio’s driver – advertising:

If these were the principal causes of Coolidge Prosperity, the salesman and the advertising mas were at least its agents and evangels. Business had learned as never before the immense importance to it of the ultimate consumer. Unless, he could be persuaded to buy and buy lavishly, the whole stream of six-cylinder cars, super-heterodynes, cigaretts, rouge compacts, and electric ice-boxes would be dammed at its outlet. The salesman and the advertising man held the key to this outlet. As competition increased their methods became more strenuous. No longer was it considered enough to reccomend one’s goods in modest and and explicit terms and to place them on the counter in the hope that the ultimate consumer would make up his mind to purchase. The advertiser must plan elaborate national campaigns, consult with psychologists, and employ all the eloquence of poets to cajole, exhort, or intimidate the consumer into buying–to “break down consumer resistance.”

In the end, the radio driven craze to buy and buy and buy all on credit had to come crashing down. It was a house of cards. The end result – the Great Depression.

Did we do the same with the web?  Did history repeat itself?  Did the sudden exposure to eTrade, online buying at a click, the dot-com boom… all of that… do to us what radio and the boom years of the 1920s did to our grandparents?

Scary, scary stuff.