I had heard disparate references to the Florida real estate bubble during my research on the history of financial crises. But, before finding this book, I was not familiar with any of the underlying details of the Florida boom and bust. The story is fascinating.
Satisfactory ways to spend money: Typical of many tales about the ups and downs of the economic and financial cycle, Knowlton tells his story through colorful characters that he unearthed during his research. He begins with a pioneer of Florida’s development, “the Gilded Age oil tycoon Henry Flagler.” Flagler developed a business model for tourism in Florida that would ultimately draw millions of 20th century visitors and inhabitants. He wrote of the state:
I liked the place and the climate, and it occurred to me very strongly that someone with sufficient means ought to provide accommodations for that class of people who are not sick, who come to enjoy the climate, have plenty of money, but could find no satisfactory way of spending it.
Flagler took some of his gains from the Standard Oil Trust and built the Hotel Ponce De León and Alcazar in St. Augustine. He also accumulated railroads, an industry he was familiar with since his Standard Oil days, to enable well-off travelers to traverse the many miles from northern states to their destination in the sun. Knowlton credits Flagler with creating “the main infrastructure artery … for the next great boom in the state’s astonishing development.”
The bubble begins in earnest: When we think of Florida today, we think of a massively populated state of more than 20 million people (third largest, behind California and Texas). But at the beginning of the 1920s, Florida was known as the “last American frontier,” a place that was largely undeveloped, with a population of less than 1 million (smaller than Nebraska).
The next phase of Knowlton’s narrative describes how Florida began growing that population. This section takes up much of the book and focuses on the ups and downs of the empires of what he refers to as the four “real estate kings” of early 20th century Florida: Carl Graham Fisher, George Merrick, Addison Cairns Mizner, and David Paul Davis. Knowlton also traces the life of a contemporary of the real estate kings: writer and conservationist Marjory Stoneman Douglas.
Each of the real estate kings would make his mark in developing Florida communities. Arriving in 1910, Fisher focused on Miami Beach. Merrick came in 1911, with his attention on Coral Gables. Architect Mizner showed up in 1918, with an eye on Palm Beach and nearby Boca Raton. Davis was a native of Florida who focused on Tampa. Knowlton comes to a harsh assessment of these main characters as he spends time on their compulsive, and increasingly questionable, work to build their sometimes gaudy empires and their behavior outside of work hours: “All four men began to blur the truth and to employ more and more hyperbole in order to sell their dream of wealth, glamour, sex and fun — a dream they themselves now subscribed to wholly.”
He also focuses on how the developers carried on their personal lives consistent with their sometimes-dodgy business practices: “Three of them … had one other failing in common: they were prone to ‘habitual intemperance’.… Each developed a serious drinking problem.” It must be remembered that this was during the time of the Volstead Act (prohibition). Knowlton continues: “What really intoxicated … the developers themselves was not the promise of sex or liquor but insatiable greed.”
In contrast, Douglas, who arrived in Miami in 1915, wrote of Florida, “I recognized it as something I had loved and missed and longed for all my life.” In the narrative, she comes across as a model citizen, as Knowlton describes her building her modest bungalow in Coconut Grove, writing a book on the preservation of the Everglades, and her broader work as an advocate for the environment. President Clinton awarded Douglas the Presidential Medal of Freedom in 1993, when she was 103 years of age.
The bubble begins to deflate: Knowlton’s chronicle of the boom period drags on a bit too long, extending for half of the book. The reader will likely be ready to hear the story of the bust by that point.
By the mid-1920s, signs of trouble were percolating, but funds from the now bubbling stock market extended the party just a little bit longer: “The soaring stock market itself was now contributing to the land boom, as investors followed the adage that you should make your money on Wall Street and invest it on Main Street.” The real estate kings at times took their money off the table but would then “double down” by leveraging and investing their gains in an ever-growing number of new real estate projects.
Finally, by mid-July 1926, some segments of the media were beginning to predict the end of the bubble in the sun. For instance, The Nation wrote: “The Florida boom has collapsed. The world’s greatest poker game, played with building lots instead of chips, is over.”
A big turning point was a Category 4 hurricane that struck Miami in September 1926. It devastated a 30-mile swath of the east coast of Florida, leaving nearly 400 dead and 18,000 homeless along with an estimated $7 billion in losses (in today’s dollars). Making matters worse, another hurricane struck Palm Beach in late 1928 with a far higher death toll: high winds caused flooding in numerous settlements and ended up “drowning 1,800 to 2,500 mostly black Bahamian and Haitian farmworkers.” Optimism about Florida’s favorable year-around climate turned into pessimism about how easily a hurricane could turn real estate investments into rubble or put them underwater (literally).
One sure sign that ongoing problems in the real estate sector were spilling over into the financial system was the failure of Palm Beach National Bank, just up the coast from Miami. The bank provided much of the funding for Mizner’s development of lots in Boca Raton. Notwithstanding efforts by the Federal Reserve Bank of Atlanta to prop up the institution, Palm Beach was “forced to shut its doors” in late June of 1926. Mizner’s Development Corporation would end up in bankruptcy. In total, 40 banks in Florida would fail during 1926. Knowlton explains that the two Palm Beach banks that went down as a result of the Mizner bankruptcy led to a “contagion” that spread to a chain of banks across Florida and Georgia.
Knowlton tries to make a connection between the bust in Florida and the Great Depression:
