Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
The Great Depression (23 page)
The stock market broke badly today. Pres. Roosevelt is alarmed and threatens to take charge of the security exchange if it threatens to interfere with his recovery progress. Stock market average drops from 102.1 to 96.3. Losses run as high as $25 per share. Wheat sold from $1.25 bu. down to $1.12. 7 1/2 million shares changed hands during the day. The U.S. dollar reaches a record low of 68¢ on foreign exchange. This brings the pound sterling about back to its old par of $4.86.
The stock market collapse continues for a second day and share losses range from 1 to 20. Turnover is over 8 million shares. Pres. Roosevelt again threatens to take control of the stock market. The decline has been the most drastic in years. Average stock loss is $8 per share.
According to today’s
Plain Dealer
Pres. Roosevelt today ordered the grain and commodity markets to close. It seems to me ridiculous. As long as prices are going up the administration is satisfied but if they go down—they want to control the exchanges. It just can’t be done.
Plain Dealer
Pres. Roosevelt today ordered the grain and commodity markets to close. It seems to me ridiculous. As long as prices are going up the administration is satisfied but if they go down—they want to control the exchanges. It just can’t be done.
Some of the things that happened yesterday are: Stock averages drop 96.3 to 87. Dollar jumps 17¢ on foreign exchange; wheat loses 16¢ bu. (25¢ 2 days ago); cotton loses $4 per bale. Stock losses: AT&T drops 130 to 122; Bethlehem 43 to 35; U.S. Steel 64 to 56; Western Union 72 to 68.
In Cleveland the collapse of the Guardian and Union Trust Banks is under investigation and criminal action will probably follow. The investigation shows that the banks were run for the benefit of officers and directors; juggling of figures in financial reports; no examination by State Banking Board or Clearing House for 8 years; immense loans to officers and directors for speculative purposes without collateral; speculation by the bank in common stocks thru subsidiaries formed for the business; hiding of losses on bad loans by methods of accounting. Actually the bank was financing a ring of hotels, coal mines, etc. for the benefit of officers and directors.
The stock market crash continues for the 3rd day and with greater intensity. Losses as high as $20 per share. Stock average drops 87 to 80. Ten million shares change hands in one day. Thousands of new speculators are wiped out. Grain markets continue closed. Radio now at 5; Republic 13; Sheet & Tube 18; U.S. Steel 49; Gen. Elec. 22; Truscon 8. The following shows some of the losses in past two days: AT&T from 134 to 114; Steel 67 to 49; Union Pacific 132-108; Nat’l Distillers 124-64; Amer. Com. 89-29; Int’l Harv. 46-29; Amer. Smelting 42 to 28; West. Un. 77-49; Gen. Motr. 34-22.
Pres. Roosevelt is not satisfied with progress to raise wages under Industrial Recovery Act. Prices have gone up—not wages. Each employer will now have to be asked to sign agreements to raise wages and cut hours. He will then be permitted to mark his goods with N.R.A. label (Nat’l Recovery Act). Consumers will then be asked to buy only products bearing this label. Pres. Roosevelt will speak over radio Monday and this will be followed by a national campaign by speakers, advertising, etc. to arouse the people. It will go hard with any employer who refuses to go along—will virtually boycott him. Roosevelt thinks this plan will put five million unemployed back to working Sept. 1st and will supply additional buying power to catch up with rising prices.
I fail to see how many department stores and other businesses now on the verge of bankruptcy after 3 years of losses can now raise wages, cut hours of employment and still be prevented from exploiting the consumer by raising prices too high. Again the professional groups seem to be left out.
According to the morning newspaper Roosevelt ordered the stock exchange closed this morning (Sat.) until Monday noon. He probably figures that his speech Monday night on the radio will instill confidence and prevent further drastic decline.
My last statement about the closing of the stock exchange was incorrect. It will be open only three hours each day—from noon to 3. The grain market will re-open today but with restrictions including a minimum price for wheat at 90¢ bu. Likewise a maximum fluctuation in one day will be prevented. The drop in commodity markets and the rise of the dollar are interfering with the President’s plan for higher prices. He may be forced soon to go further along the road to inflation.
Stocks made a rapid recovery today and gained 1 to 10 points. Stock average jumps from 80 to 87.
Pres. Roosevelt talked on radio yesterday and explained his new plan of asking employers to raise wages and cut hours. He asks the public to help by buying only merchandise bearing the national insignia.
The stock market drifts for past few days with an average of about 88. Beginning next week the stock market will be open regular hours although the Chicago commodity markets are still under restriction.
Employers are beginning to protest because beginning next week they will have to raise wages, shorten hours and employ more help. The average department store clerk gets $7.50 a week or less. Under the new law the minimum will be $14 per week. Employers will comply with the law because they fear a boycott.
Strikes are getting more numerous around the country. I fear we may hear more about this in the near future.
The NRA (Nat’l Recovery Act) goes into effect today with higher pay and lower hours. It is hailed as a remarkable experiment that may change the future of U.S. business. It gives government almost complete control of business, wages, labor, hours, etc. Opinion as to its ultimate success is about evenly divided.
Co-incident with the first day of NRA control the stock market broke badly and losses averaged 1 to 10 points. Average is 83. Higher wages and shorter hours will mean smaller earnings for corporations in the near future. This may affect the prices of stocks. Talk of inflation has died down again and nothing radical has yet been done.
The coal strike situation in Western Pennsylvania gets steadily worse. 10,000 striking miners were added to the list yesterday. State troops are on the scene and several violent deaths are reported.
Law practice gets steadily worse instead of better. It is unbelievably bad. Days go by without a single fee. The few people who do come in are of no value.
Almost all the stores in town now have NRA signs pasted on their windows. In a great many cases they are juggling hours and wages so as to minimize the benefits of the act. So far there has been no boycotting.
It is interesting to note that up to the present time the government has taken no action against gold hoarders who refused to turn in their gold.
A good many “chiselers” are doing business under the N.R.A. sign. For instance one restaurant in town boosted wages of waitresses from $8 per week (plus meals) to $14 per week and then charged back $1 per day for meals. The government promises to prosecute such violations.
Since Roosevelt became President a war-time hysteria of public opinion has been created which makes it unpopular to criticize what he does. Even newspaper editorials have unanimously supported him so and refrained from honest criticism. I believe the honeymoon will soon be over.
The stock market lays down stringent rules to curb the small speculator. Hereafter accounts under $5000 must be margined at least 50%. Pools must be reported, customers now are under closer control, etc. It is probable that the government “suggested” these rules.
It is notable that in the working out of this “new deal” the banker has dropped out of the picture as a leader. The reverse was true before 1929.
A woman hangs a government-issued National Recovery Administration Blue Eagle poster in her restaurant window in 1934, identifying the establishment as a participant in the N.R.A. codes. (Franklin Delano Roosevelt Library)
Shortage of coal caused by coal strikes may curtail steel mill operations and also work an additional hardship on the small consumer next winter.
EDITOR’S NOTEPolitical activist Eugene S. Daniell Jr., who later served as a nine-term state representative in New Hampshire, set off two tear-gas bombs near the ventilation system of the New York Stock Exchange in August 1933 to protest the imbalance of wealth between those on Wall Street and the rest of the country during the Depression. Daniell served thirty days in jail for the disruption.
The federal gov’t calls a truce in the coal strike until a code for the coal industry is approved. It remains to be seen if the government can prevent strikes. If it fails then the entire NRA program is endangered.
Youngstown (and all other communities) is preparing a big publicity campaign to enlist public support for NRA. Dr. Philo has been made chairman of “minute-men” speakers who will address luncheon clubs, etc. It will be similar to the Liberty Loan campaign during the war. The word “boycott” will probably not be used but it will be a mark of patriotism to patronize only NRA merchants. This is the only feature I don’t like.
Tear gas bombs thrown into the stock exchange yesterday cause it to close in middle of day.
Prices of food and other necessities still go up like a sky-rocket. It is becoming a serious problem for everybody—even those with jobs. All advertising warns people to buy before Sept. 1st. Already the increase ranges 40 to 100%.
Barbers boosted haircuts from 25¢ to 35¢ and now to 50¢.
Under the NRA all forms of workers are organizing for higher pay and shorter hours. Even the house-maids are beginning to organize.
It has always been interesting to know whether
in the long run
the speculator in stocks who bought and sold frequently made more money than the plodder who bought stocks and held on. The story is told of a young couple who used the following plan:
in the long run
the speculator in stocks who bought and sold frequently made more money than the plodder who bought stocks and held on. The story is told of a young couple who used the following plan:
1. Starting in 1915 they regularly saved 10% of earnings and little by little bought sound common stocks.
2. They never speculated or sold and knew nothing about the stock market. In 15 years an original investment of $5000 was worth $100,000 because of dividends, split-ups etc. of the original stock.
This seems to be the sound rule for obtaining wealth but it requires patience which few possess:
1. Live on less than you earn—save at least 10%.
2. Invest, don’t speculate so that none of the principal is lost. Re-invest the earnings.
3. Never sell a good stock unless the price is above its intrinsic value (as in 1929).
It is said that George F. Baker, the New York Banker, will always buy sound common stocks when they are being offered below intrinsic value and then he will never sell them except for very good reasons. He looks for his profit in the growth of the company rather than in the speculative increase of the market quotation.
The story cited about the young couple would not happen in ordinary time—the period from 1915 to 1930 covers a very unusual boom period. If this same couple had invested in Sheet & Tube stock from 1919 to 1929 they would have had about 125 shares in 1929 for an original investment of $5,000. If they had sold in 1929 at boom prices they would have received about $17,000.
But
if they had held on for 3 or 4 years more the stock market reached a low point of $6 per share or a total value of $725. Ordinarily an investment in good sound common stocks over a period of years will show an average dividend return of 5 or 6% with possibly a doubling or trebling of the original investment if the company is young and showed growth. Only the dividend would be received and no great growth in the original capital if the investment had been made in an old established company such as the Pennsylvania R.R. In the long run the return from a conservative common stock will probably be no greater than from a good bond. The growth comes only in the young companies and here the speculative element is always present. A great number of Youngstown families grew wealthy thru steady investment in the Y. Sheet & Tube thru its early years of growth. They were fortunate however because they picked a good one.
But
if they had held on for 3 or 4 years more the stock market reached a low point of $6 per share or a total value of $725. Ordinarily an investment in good sound common stocks over a period of years will show an average dividend return of 5 or 6% with possibly a doubling or trebling of the original investment if the company is young and showed growth. Only the dividend would be received and no great growth in the original capital if the investment had been made in an old established company such as the Pennsylvania R.R. In the long run the return from a conservative common stock will probably be no greater than from a good bond. The growth comes only in the young companies and here the speculative element is always present. A great number of Youngstown families grew wealthy thru steady investment in the Y. Sheet & Tube thru its early years of growth. They were fortunate however because they picked a good one.
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