Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
The Great Depression (15 page)
In a speech delivered the other day Pres. Hoover summarized the present depression so far as follows:
1. In 1929 and 1930 it seemed to be an ordinary depression and in early 1931 the U.S. seemed on way to recovery.
2. In 1931 European countries became demoralized and suffered breakdown and revolution. England went off gold standard and was rapidly followed by Sweden, Denmark, Norway, Finland, Australia, India and Egypt. All Europe withdrew her gold from U.S.—European investors were scared and dumped their American stocks and bonds on the market and withdrew more gold. Then the people of U.S. followed suit and withdrew their savings for the purpose of hoarding and this caused our banks to fail. This was followed by Japanese war and a breakdown in Germany. This went on for 18 months.
3. We have now survived this financial panic. We paid Europe every dollar we owed them and we are still strong and will remain on gold standard. With the help of Reconstruction Corp. and other government agencies we are now lending credit to railroads and other private industry. The recovery will be slow because Europe also must recover but it is certain we will succeed.
It is interesting to note that during the first three years of depression a wave of bankruptcy swept out of existence most of the small independent merchants. Recently the movement has included large national chain stores. Yesterday the United Cigar Stores Corporation with over 800 stores went into bankruptcy. This also happened recently to several drug stores, ladies dress and shoe shop chains. In almost every case a reorganization is affected. In each case also the main trouble has been long-term leases taken at exorbitant prices during the boom period. One chain organization took three 99 year leases in 1929 in the best locations in Youngstown. They remodeled and subdivided each building so that for awhile it showed a profit. Indirectly they made more money out of their real estate speculations than they did out of their business. Today their rents are entirely out of line and they are being forced to liquidate. In most cases the landlord is the winner.
Angry dairy farmers who were unable to feed their families—or pay their real estate taxes or mortgage on the 1¢ a quart that they received for their milk—went on strike in 1933 to seek higher prices. They poured milk on the road and blockadedtrucks from transporting their products to cities like Detroit, Michigan, and Toledo, Ohio. (Library of Congress)
The month of August just ended has been the lowest point so far in the depression for all kinds of business and professional men. The heat has been severe and all kinds of activity are at a complete standstill. The stock market on the contrary tripled its value during August in one of the quickest climbs ever witnessed. I believe this also established a record. Nobody seems to know even yet why the stock market went up because business has gotten worse instead of better.
Here is another bona fide depression story. An individual in Detroit was worth five million in 1929. His holdings consisted of 8000 shares of stock in a Detroit Bank selling at $300 per share; balance in good real estate and miscellaneous securities. The bank stock is now selling at $3 per share; the real estate is vacant and the other securities have also shrunken and are paying no dividends. Here again his only salvation lay in having at least half of his funds in hi-grade bonds. Here again real estate and bank stocks proved to be highly speculative.
As far as bonds are concerned most all first and second grade issues have continued to pay interest all thru the depression. High grade bonds like AT&T suffered very little. Second grade bonds like Yo. Sheet & Tube and most of the railroad bonds went below 50 but continued to pay interest. Most of the real estate bonds defaulted in their interest or resulted in receivership. The conclusion seems to be that when bonds are purchased only the highest grade—preferably municipal or governments—should be purchased.
The farmers’ strike in Iowa grows intense and 12 farmers are killed. The state militia is called out to preserve order. The movement is spreading to farmers in other states. They are dumping and destroying their produce. In Youngstown corn sells at retail 2 dz. for 15¢. Tomatoes, potatoes, peaches and apples at 20¢ a half-bushel basket out of which the farmer must pay a nickel for the basket. Other produce at corresponding prices.
The stock market still continues upward with hardly a pause since the middle of July. In the meanwhile industry is still stagnant and shows very little sign of pick-up. Most financial writers refer to the stock market as an election market and believe it will break badly after the November elections unless there is an unexpected pick-up in business. Some comparison between stock prices between July and September follows: Aluminum Co. of Am. 25-85; Sheet & Tube 4 to 27; Bethlehem Steel 7 to 30; AT&T 70 to 120; U.S. Steel 22 to 50; Western Union 13 to 50; United Aircraft 7 to 30. Most of railroads are 400% higher now than in July although railroad business continues to get worse.
I believe it can be truly said that the man who has money during this depression to invest in the highest grade investment stocks and can hold on for 2 or 3 years will be the rich man of 1935.
Judge Griffith said to me today: “I was a young man when the panic of 1873 occurred and I can remember how my father after that always insisted that government bonds were the only real safe investment and were a necessary part of every investment list. In my law practice in later years I found that other successful men who lived thru the panic of 1873 felt the same way. One particular client—a successful steel executive—always held $100,000 in government bonds out of a total estate of $250,000. His theory was that he could always live on the interest from the bonds no matter what happened to the rest. Now that I am experiencing the 1929 panic I can see how those men felt and I now agree with them. Banks and large corporations will continue to fail in great crises but our ultimate faith must be in the government.”
The lawyer who is engaged in general practice in this city is having a hard time making ends meet. On the other hand the “bankruptcy lawyer” is reaping a harvest from bankruptcies and from forced reorganizations. This work is monopolized in Youngstown by 2 or 3 law firms by solicitation of claims and by control of credit organizations. Because the work is so very destructive these lawyers are also reaping a harvest of hatred and distrust from the merchants forced into liquidation.
Directly after the war period it became popular for small local concerns to expand by selling stocks to the public. In almost every single instance these investments have proven to be worthless. This is also true of a number of small state banks that were organized in this period. An investment in a new enterprise seems to have proven far more hazardous than in established companies with a proven record of earnings.
In spite of the activity in the stock market, business conditions get worse. Steel mills operate at 15% capacity. There is a slight increase in fall business but it is probably only seasonal. The national elections begin to warm up.
After a rising stock market of six weeks which increased values 150%—the market broke badly last week. Stock prices are still 100% higher than last July and seem to me too high in view of present tremendous losses to all business. It is impossible to tell if the improvement is permanent or only an “election market.” So far in last 2 years the stock market has made 8 fake starts upward and then eventually came back to record lows. Commodities have also steadily declined and show no definite sign of upward turn.
Moving picture operators go on strike in Youngstown last week. The theaters are being operated by strike-breakers under guard—while the entrance to each theater is being patrolled by union men. The union rate is $85 per week and they won’t take a cut. Public sympathy is not with the union in their attempt to maintain wartime wages. I am afraid we will witness many strikes in the next two years before wages are finally adjusted and I am also afraid the depression can’t end until wages come down. The disparity between cost of raw material and finished product is entirely too high.
The issues involved in the coming National Election are mainly economic and I am intensely interested. I feel that the Republican Party should be continued in power. I never delivered a political speech in my life but I am tempted to try it in the coming campaign. It looks as tho the Democrats will win because everybody wants a “change.”
Business remains at a complete stand-still and it looks like a tough winter. The national election campaign grows intense and people are very partisan.
The stock market still retains most of the gains it made in September and it will probably stay there until after election. There has been some improvement in business but mostly seasonal. And steel mills are operating at about 18% capacity. Most of the lawyers are discharging their stenographers and fees are simply non-existent.
Nothing startling has happened in past few weeks. The stock market is sagging again and business at a complete standstill. Everybody seems to be waiting for the election to be over.
The national election grows heated. I made my first political speech last night on behalf of Republican Party—spoke on national issues in the Mt. Zion Baptist Church on Himrod Ave.
The 14th of this month will mark a year since the big banks in Youngstown closed. They have all been re-opened with government loans but are not doing any business.
This is becoming the battle-ground for the National Political Campaign. Both President Hoover and Franklin D. Roosevelt were here in person last week. It is a repetition of the campaign of 1896. All indicators point to a Democratic victory but I personally think that Hoover will get stronger in the next two weeks and win.
I have already remarked how the real estate owner can collect no rents and must pay taxes. The situation is almost ridiculous. Tenants occupy a house for 6 months without rent and then move on to a new location. It is useless to sue.
Recently the down-town real estate situation has come to light. One owner told me that his taxes are $250 per month and his rental income is $75 per month—when he gets it. Formerly the same property brought in $800 per month. Another property was formerly leased at $10,000 per year plus taxes—now rents for $125 per month. Another downtown property owner owes $60,000 in delinquent taxes. There are at least 20 good storerooms between the public square and Spring-common. Others are occupied by temporary tenants selling fruits or 15¢ neckties, etc.
Not very much down-town property has been foreclosed or has changed hands so far. This is due to the fact that these properties are in strong hands. Most of these properties are subject only to moderate mortgages. The wisdom of this is now apparent.
The city is borrowing $300,000 from the government to feed 30,000 people in bread lines here this winter. It looks like a winter of hardship and suffering and possibly of violence. Many people in good homes have no food or coal and are too proud to make known their situation. The beggars have become obstinate and sullen.
The Savings & Loan companies of the city seem to have started a regular drive to foreclose real estate. This may be because there has been so much public talk about a moratorium on mortgages. Every day sees about 30 new cases started and many of our friends in fine homes on the north side are included in the list of casualties.
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