The ticket tape that reports prices outside the Exchange
fails increasingly behind. In the offices of J.P. Morgan
and Company, where a group of top investment bankers are
meeting, cooler heads prevail. In an effort to reverse
the tide, Richard Whitney, vice president of the
Exchange, is sent to the floor to purchase millions of
dollars worth of key stocks. This action is successful
and prices begin to steady.
Activity on the Exchange is relatively stable the next
day, but on October 28, prices again tumble. This time
the bankers do not try to halt the decline. On October
29 panic selling increases. The ticker tape is two and
one-half hours behind and by the end of the day a record
16,410,030 shares have been sold, with a total loss in
value of 880 issues estimated by The New York Times to
exceed $8,000,000,000. Thousands of investors see their
fortunes wiped out.
Economists, bankers, and politicians grope to find an
explanation. Most believe that the economy is still
sound and the market will soon recover. Some say it is
merely a momentary psychological aberration. Secretary
of the Treasury Andrew Mellon insists that the stock
market debacle is an illness that will soon run its
course and cure itself. Although there are signs that
the problem goes much deeper, most prefer to ignore
them. Examination of statistics reveals an increasing
unemployment rate during the year prior to the crash and
a great decrease in construction activity. Still most
industry continues to prosper throughout the year and
the automobile companies produce a record 3,000,000
cars.
President Hoover's troubles really began in the late
autumn of 1929. The nation had been in the grip of a
fictitious stock-market prosperity; and economic experts
had been warning their friends privately for many months
to get out of the market before the crash came. Stocks
had been forced up by speculative buyers to fabulous
prices: A.T. and T., for example, to $304 a share and
United States Steel to $241. New securities worth
$15,000,000,000 had been issued in one year. Trading had
increased on the market from $223,000,000 shares in 1920
to 1,124,000,000 shares in 1929. Finally, the stock
market crashed on October 23, wiping out an average of
more than a billion dollars' worth of paper values a
day.
The previous frenzy of speculation gave way to a mad
scramble on the part of everyone to get liquid. Every
transaction drove down the market value of what had been
considered gilt-edged securities, Gold flowed out of the
country and both gold and Federal Reserve notes into the
safety deposit boxes of private citizens, Unemployment
mounted to more than 7,000,000 with a year, ultimately
to the staggering total of 15,000,000 and those who
continued to work did so under greatly reduced wage
scales. For three and one half years ruinous deflation
continued and its paralyzing effects spread to all parts
of the world. Millions of people lost savings invested
in gilt-edged securities. Millions more were reduced to
beggary. Private charity proved incapable of sustaining
the destitute. Little by little the totality of the
collapse dawned upon an incredulous people. Destitution,
despair, and divided counsels prevailed. No man of
vision came forward with a program of relief. It was the
price a people paid for more than a decade of political
stagnation. Economists are pretty generally agreed on
the causes of the economic debacle though there is less
agreement on the relative importance of each:
Causes
1. There was an unbalanced world economy, with
European nations staggering under tremendous burdens of
debts and taxes, with depleted gold stocks, and with
adverse trade balances, World War I purchases, payments
on war debts, the fever of speculation, and fear of
another European crisis had drawn to the United States
the gold which the rest of the world needed for normal
business purposes, and tariff walls kept them from
getting it back again through normal trade processes.
2. The abnormal business conditions of the war
and immediate postwar period had merged, in the United
States, into a speculation boom in the late twenties
which carried prices, and particularly prices of
corporate stocks, far above real values. Year after year
larger amounts of bank loans went into the speculative
markets instead of into legitimate business channels.
Banks were weighted down with government bonds, real
estate mortgages based on greatly appreciated
valuations, and highly speculative securities.
3. The approach of business and of government to
the economic processes had been from the viewpoint of
production. The vaunted prosperity had been a
corporation prosperity. The problem of consumption had
been ignored. Agricultural surpluses piled up as prices
of farm products declined until farmers could no longer
purchase the products of the factories. The returns from
machine production were unevenly distributed.
Technological unemployment increased, and year after
year, larger amounts of money flowed out of the channels
of consumers' trade and into the savings deposits of the
relatively well-to-do. In short, the take of capital was
too large, and the country was suffering from under
consumption not from overproduction.
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