224 The Stock Market Crash—And After

New Problems Due to Discounting of Gains

He draws the conclusion that there were sound
business reasons for the rise in securities, but that
the discounting of expected business gains gave rise
to a new set of problems which resulted in the security
 markets going forward too fast. Mr. Kent summarizes
 as follows:
“We find that sound business growth was at the
bottom of the normal rise in the price of securities,
that politics as exercised in the capital-gain tax prevented
 sales of securities which would have acted to
hold the prices within bounds, that uncertainties
caused by political blocs in Congress changed the
forward-looking national psychology into one of
uncertainty, that new securities were created and issued
 more rapidly than the public could absorb, and
that their intrusion in brokers’ loans and other security
 loans was not intelligently understood; that
certain of these forces worked to create high prices
for securities and others to undermine such prices
after they had been attained.”
Mr. Kent has taken an important view of the
growth of brokers’ loans. But he fails to make clear
that these loans do not necessarily represent real
money or added drafts on the national income. To
a large extent they are simply “indices of suspended
titles.” To show this a friend who has given it
special study supplies an example:
Assume first that “A” owns one share of New
York Central stock which cost him $65; that “B”