Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
The Great Depression (33 page)
Everybody is talking about the coming “boom.” Some think it is already here and others say it will be here in 6 months or a year. At any rate business is back to normal—new cars crowd the streets—strikes are popular, etc. Prices are rising fast and merchants have a hard time getting delivery of merchandise. It may be that inflation will take hold next year. If so, then a boom for 1937-38 and then a crash.
In Europe King Edward threatens to abdicate his English throne in order to marry twice-divorced Mrs. Simpson, an ex-American. It is the topic of the day.
King Edward of England abdicates his throne in order to marry Mrs. Simpson—the twice-divorced American. Everybody thinks he is a d—fool and many are quoting Kipling “Rag and bone” etc. The X-King delivered a farewell address over the radio last night and I heard it. Pledged his allegiance to the new King—his brother. Said he abdicated because he could not carry his burden of King without having at his side the woman he loves. He goes into exile. General prediction is that he will not find happiness with Mrs. Simpson and will be a wanderer without a country. The whole episode is amazing and revolting and seems to be just one more chapter in the crazy-quilt of world history since the world war. The ex-King is 42 (Mrs. Simpson 40) and both belong to the “lost generation” which participated in the war and became so cynical afterward.
12/24/52The former King of England is still in exile but is still living happily with the woman of his choice.
Xmas trade for retail stores is booming. Steel mills above 80% and every appearance of gaiety and prosperity. Prices are rapidly rising and many store-buyers report shortage of goods. Strikes are more numerous.
Talk grows about a coming boom and inflation. The present government insists that it can and will prevent boom, inflation and subsequent depression. I am skeptical. Some time ago, the government increased bank reserve requirements 50%—thereby cutting down possibility of credit inflation. Today it ordered segregated in a separate fund all newly mined gold and all the gold that is pouring in from Europe—this so that the gold could not be used as a base for further expansion of the currency.
All these steps are reminiscent of the early history of French inflation and they all failed. At the present time in U.S. there are still 8 or 10 million unemployed in spite of the prosperity—the budget is still unbalanced—and the government for political reasons hesitates to do anything that will disrupt the upward trend.
12/21/37The business line reached normal in 1937 but did not go above. For 8 months it flattened out along normal and then in Sept. 1937 crashed straight down to 20 below. The 1st 8 months of 1937 should have been a warning that the boom was at an end.
Talked with Al Wechsler this morning. He is manager of a ladies dress shop. Says that they have had the biggest Christmas season in their history.
It is a pretty blue Christmas for the lawyers and other professional men. Merchants and industrialists have reaped a harvest, the laboring groups have received good pay and bonuses and have promptly spent it all on consumer goods, stock market speculators have much to be thankful for, bonuses and dividends have been poured out—and yet very little of this good fortune has touched the professional group. It is hard to understand why, in the face of all this seeming prosperity, there are still about 8 million unemployed in the U.S.
Just came back thru the stores on my lunch hour. People are spending money like drunken sailors.
Just talked with a client 63 years of age who lost everything in the late, lamented depression. He made a substantial fortune in business but all of his investments were in speculative stocks and went bad—Republic Rubber, Standard Textile, Youngstown Banks. He says now that if he had placed all his savings in gov’t bonds just to preserve the principle he would have been better off. If he had it to do over again he would buy annuity insurance. At his present age a life annuity of $250 per month looks like a fortune. His story is identical to the story of many successful business men who have learned that the making of an investment is more important than the earning of the money, and that safety of principal does not go hand in hand with a high speculative profit. As he put it to build wealth you must:
1. First learn to save or accumulate money.
2. Learn how to hold these savings by avoiding speculation.
3. Learn how to make this money work for you thru conservative investments.
1937
It seems to me that the time has come where we can formally and officially announce that the depression of 1929 has ended.
7/19/39You were wrong. A new depression started Sept. 1937 and is still with us.
Recovery started in the summer of 1932 but from 1932 until March 1935 the movement was so uncertain and there were so many set-backs that nobody dared predict very much. In March 1935 without any apparent reason the stock market began a march upward which has continued until the present day. None of the commercial indexes gave the reason for this rise and for 6 months or a year many able men predicted that it would collapse as so many other false starts had done. But it did not collapse and in its wake the automobile industry pressed forward in a spectacular fashion until now it approaches the 1929 level of production and talk of a boom is heard. Railroads and steel then picked up and have been booming during the past year. During 1936 Youngstown has changed from a depressed steel city into a booming industrial center. The roads are crowded with new cars, vacant houses and stores are at a premium and people are buying freely of consumption goods such as clothing, furniture, etc. In 1932 almost every furniture store in town was out of business—in 1936 almost 6 new furniture companies opened their doors. I generally assumed that during a depression the personal finance companies would do a big business but the reverse is true. In 1936 many new personal and automobile finance companies came here and they all appear to be doing a business. Now that people have steady jobs they are borrowing to pay old debts and are again buying on the installment plan. Along with this, prices of clothing and other necessities are rapidly rising.
Looking back now at the picture of the depression it seems to me that a student of history could have made a better prediction of when the depression would hit bottom etc. than a banker. All he had to do was to compare the chart of this depression with the charts of 1838, 1873, 1893, etc. Both 1873 and 1929 were war depressions and it follows that the charts of these two are almost identical. If an investor in 1929 had governed himself by the depression chart of 1873 he would have come close to the truth. The time of hitting bottom, the time of revival, the duration, etc. All seem identical. It is a very interesting fact that the “New Deal” with its pouring out of government funds, its managed currency, etc. did very little to change the ’29 depression from that of ’73. It did cause temporary and violent fluctuations but did not alter the duration of the depression or the basic structure. I realize that every depression is different and it is foolhardy to attempt to see too far into the future. Yet it seems to me that the following would be of interest to the student of history who is also an investor:
1. When the depression comes it is first most important to determine if it is a major or a minor depression. This is difficult of course and yet if we study the cause—such as war, over-speculation, etc. it may lead us in the right direction.
2. If you determine that a major depression is due in the economic cycle, then find some other depression in the U.S. history which was brought on by similar causes: e.g. 1873 was 2nd depression after Civil War and 1929 was the secondary depression after the world war. In a similar way 1837 was a bank credit and land speculation depression; 1893 resulted from over-expansion of railroads and 1907 came after over-expansion of business corporations.
3. If you can once definitely place the new depression in its proper historical background then the rest is easy. History will repeat itself and the chart of the old depression will foretell pretty accurately the course of the new. You will be told that this new depression is different because of government control, etc. but as long as human nature is the same and people like to speculate, it is probable that in the future, economic booms and depressions will come and go as in the past. I have little faith that government can eliminate or control the economic cycle.
6/15/68The boom after World War I lasted 10 years. The boom after World War II is now 23 years old (1945-1968) and still going strong. From about 225, the D. J. reached 1000 in 1966.
The following general conclusions can be drawn from the depression just ended:
1. The business of the lawyer did not drop off quickly in 1929 with the coming of the depression. In 1930 and 1931 the lawyer made some money out of bankruptcies, foreclosures, etc. 1932-1936 were bad depression years for the lawyer and even tho prosperity has returned for most people it has not yet returned for the lawyer. It will be a year or more before people will have enough money to buy real estate and do other things that require a lawyer. The lawyer who specialized in bankruptcies, receiverships and reorganizations reaped a harvest throughout the depression.
2. During the years 1930-1934 when people were out of work they wanted to gamble for small stakes and to play games of chance. The “bug” number game, horse and dog racing, etc. were all profitable. One Youngstown man made considerable money by inventing a marble game similar to a slot machine.
3. If you once determine that you are at the beginning of a major depression, then liquidate your investments at once even at a loss because later on you will be able to buy back at a fraction of the price. An investor who sold out at a loss in 1930 or 1931 could have bought back at 1/4 the price in 1932.
4. Cash is king in every depression. A small investment in real estate or stocks or bonds in 1932 would be worth a fortune today. Comparisons of a few 1932 stock prices with today’s prices: Sheet & Tube 4-80; Republic 2-30; Gen. Motors 8-80; Gen. Elc. 8-58; U.S. Steel 20-78; Amer. T&T 70-180, etc. Even the good stocks, bonds and real estate were selling at giveaway prices but few men had both the cash and the courage to buy when things looked the blackest.
5. When the final upturn came in 1935 it came very quietly and suddenly and kept on going up all thru 1936 and has not yet stopped although we have already passed normal. It was quiet but spectacular and the full effect cannot be appreciated unless you look back to see what progress was made in 1935-1936.
6. During the past depression prominent bankers, business men, etc. were all wrong in most of their predictions. Use your own judgment and do your own thinking.
12/1/55The same argument still rages today. I still do not believe that gov’t can wipe out cycles.6/15/68I still do not believe that a managed economy will work.
I am told the managed economy of the “New Deal” has eliminated future booms and depressions but I do not believe it. I am afraid that during the next few years we will see some form of inflation. Already prices of food and commodities are going up, brokers offices are crowded again and people are just as stock crazy now as in 1929. In some respects, stock prices are as much out of line now as in 1929. Banks are piled high with deposits and do not know how to invest it because good bonds bring in only 2%. Only yesterday the Union National Bank announced it would not accept savings accounts in excess of $1000 because it could not use the money. When business really expands enough to borrow this bank surplus, there is danger that we will have pyramiding of these huge credit reserves leading to over-speculation, over-expansion, perhaps an inflationary boom and then a crash. Government officials say they can control this coming boom but I do not believe they can or for political reasons will be unwilling to restrain “good business” and expansion.
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