Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
The Great Depression (4 page)
And yet: It’s nearly impossible for any reader in 2009 to examine this work without seeing stark, sometimes eerily prescient, parallels to our own age. Here, for example, is an entry from May 1933: “Investigations are the order of the day. The Senate is investigating private banking and in particular J. P. Morgan & Co. Mr. Morgan was on the witness stand all day yesterday and today. The evidence shows that his firm made loans to many men now prominent in public affairs.” There is this on June 1, 1933: “In looking back over the 3 months since Roosevelt became President it seems that the U.S. has traveled a long way toward some form of socialism or managed economy.” And this in 1932: “It looks as though the Democrats will win because everybody wants a ‘change.’”
The point here is not whether bulls or bears are right or wrong within any snapshot of any decade, or whether critics of FDR in 1933 or Barack Obama in 2009 are off base or right on the money. Rather, Roth’s diary is a reminder that our economic security, individually and collectively, always rests on a complex interaction of market forces, politics, consumer perception, and the impact of unforeseen (and sometimes unforeseeable) events. As in so many other areas, those offering predictions for the future or even detailed readings of the present are often wrong because of incomplete information, flawed statistical models, or hidden agendas.
And even when they are right within a particular time frame, history often has other plans in mind. The Youngstown that Benjamin Roth knew and hoped to see revived—the booming steel town, where soot-choked skies meant prosperity—did in fact survive the Depression, thanks in large part to the military buildup during World War II, a major theme of this book’s final chapter. But Youngstown today has a fraction of the steel industry and population that it had in 1930; even by the late thirties, the steel industry’s need for cheap water-based transportation had moved much of the area’s production westward to the South Chicago-Gary, Indiana, area, so that shipments could go out via Lake Michigan. In a triumphant document issued in 1950 to celebrate its first half century of existence, Youngstown Sheet & Tube declared that it “looks forward to another fifty years, and then another, ad infinitum, of continued service to its buying public, its employees, its shareholders and its country.” That infinite vision no doubt made sense to the company and even to Roth at the time—this was one of the largest firms in a region that in midcentury was alone producing more steel than, say, France. But in reality the company would not last another two decades on its own, nor Youngstown’s industry as a whole much more than another thirty years.
As I write this in June 2009, General Motors, once the largest private company in the world, has been delisted from the New York Stock Exchange. Benjamin Roth, I think, would probably not have recognized a world in which General Motors was not a major engine of the U.S. economy. Based on his diary, however, I think he would have soon grasped how it could come about. Stock markets and individual sectors may go up or down, for months or decades at a time, but certain broader economic forces—in his time, the international movement of gold or the buildup to war; in ours, deindustrialization and globalization—will always assert themselves.
The actual diary page.
CHAPTER 1
JUNE 5, 1931-OCTOBER 17, 1931
FOREWORD
For the first time in my personal business life I am witnessing a major financial crisis. I am anxious to learn the lessons of this depression. To the man past middle life it spells tragedy and disaster but to those of us in the middle thirties it may be a great school of experience out of which some worthwhile lesson may be salvaged. With this thought in mind I am going to write down brief accounts of developments as they occur from time to time.
JUNE 5, 1931
Benjamin Roth
2032 Elm Street
Youngstown, Ohio
2032 Elm Street
Youngstown, Ohio
BRIEF RESUME OF EVENTS PRECEDING THE PANIC 1931
I was mustered out of military service on December 5, 1918 and returned to Youngstown to open a law office. I found business humming. The return of thousands of soldiers to civil life had brought a boom to real estate, clothing and other retail trades. When I purchased my first civilian suit I found I had to pay $70 for a suit that might have cost half that amount a few years before. Silk shirts with big candy stripes were in style for the men and the usual price was $10 to $12 for an ordinary shirt. In a similar way shoes and other items were expensive. I was amazed to find mill-workers in Youngstown wearing these silk shirts without a murmur. I also learned that during the war and still in 1919 these mill-workers had earned enormous wages—from $10 to $35 a day.
This feverish prosperity and easy money continued through 1919 and 1920. In 1921 came a steel strike in Youngstown and for awhile it looked as tho we were heading for a depression but in 1922 things picked up again and continued in a hectic spiral upward until the big stock market crash in October 1929.
As I look back now I can understand how America during the years 1919 to 1929 was called upon to supply the needs of both Europe and America—after five years of wartime destruction. In Europe the industries and railroads had been destroyed and America was called upon to rebuild Europe to supply her returned soldiers with food and clothing and other necessities. At the same time the enormous similar demands of our own country had to be satisfied. I know now—but I did not know it then—America also supplied Europe with the money and credits to purchase our merchandise and we have not been paid back to this day.
At any rate things began to hum again in 1922. Our steel industries and other factories turned from the making of war material to the making of automobiles, radios, etc. We had a real estate boom and later in 1925 there was a tremendous boom of real estate in Florida. Prohibition was in effect but actually the amount of boot-leg liquor consumed exceeded that before Prohibition.
As I look back now to the 1922-29 period it seems to me unreal and almost unbelievable. After the war pressure people wanted to have a good time and to spend money. The flapper appeared upon the scene. Women’s dresses became shorter and shorter until they hardly reached the knee and in the latter stages of the delirium they wore their stockings rolled and their bare knees rouged. Morality and religion were pushed into the back-ground and in its place came Negro jazz bands and night clubs and all its attendant evils.
To an older man it must have seemed inevitable that we were heading for a crash but to most of us it seemed that we were in a “New Era” which would never end.
On the industrial side of the picture, mass production led to the formation of larger and larger mergers. We began to hear of stock market millionaires, huge extra dividends, stock split-ups, and 99 year leases in real estate, shoestring financing and all manner of speculation.
In my own law business I began to feel a change in 1924 but did not know what was happening until several years later. My practice dealt largely with independent merchants. In 1924 these independent merchants began to be replaced by chain stores. The A & P and Kroger grocery stores probably put over 1000 merchants out of business in Youngstown. Today almost every building on Federal St. is occupied by a chain store. For many of these independent merchants I performed one last rite—bankruptcy—and never saw them again. In this way I lost considerable legal business because these independent merchants had been a substantial group of citizens owning real estate, etc. As for the chain stores, their legal business and banking was done in New York or Chicago and the local lawyers and banks gained nothing by the change.
In a similar way beginning in 1924 real estate and building transactions became fewer and fewer. An experienced economist might have recognized all these signs but to most of us it meant nothing. We believed in the New Era and were not going to sell the U.S.A. short. Dictatorship, Communism and Socialism might rear its head in Europe but we were sure in those days that none of those things could come to America.
Businesses in downtown Youngstown, Ohio, still appeared to thrive in 1930 and would not feel the full effects of the Great Depression for another year. (The Mahoning Valley Historical Society)
The picture would not be complete without a word about the stock market. Before the war the average man knew nothing about stocks and bonds and the stock-market was something he had read about in connection with Wall St. propaganda. The average man who wanted to invest or speculate used real estate as a medium and it was still considered a truism that the most sure way to build a fortune was through the ownership of real estate. I believed this and my parents believed it but my faith has been considerably shaken by what happened to real estate and mortgage investments since the depression.
During the war people bought Liberty Bonds from the government under high pressure propaganda and after the war when they sold these bonds many of them for the first time entered a stockbroker’s office. Many holders of Liberty Bonds did not even know how to sell them and after the war “Liberty Bond Scalpers” opened offices, advertised and purchased these bonds from ignorant investors at discounts ranging from 25% to 50%. The scalper then sold these bonds on the market at par and with the money scalped some more bonds.
Without being able to explain it the fact remains that after the war people became stock-market conscious. Much publicity had been given to war babies (stocks of companies that made war supplies and paid huge dividends) and from 1922-1929 it seemed as tho every man, woman and child had determined to make a fortune by “playing the market” on margin. In 1929 when the crash came all sorts of people were into the market on margins over their heads—doctors, lawyers, merchants, bootblacks, waitresses, etc. They bought stocks on tips, did not know what the company sold or made and did not know how to investigate a stock even if such a thought had occurred to them.
EDITOR’S NOTEEntering the stock market had become a lot cheaper by the 1920s. In the mid-nineteenth century, industries that required massive amounts of capital, like the railroads, raised money by dividing up the ownership of a company into shares. But in the early twentieth century, and especially after World War I, all kinds of enterprises needing money to fund their operations began splitting their stock shares into smaller and smaller amounts so more Americans could afford the opportunity to “own” a part of a company. Furthermore, cheaper “common stocks,” stocks with no guaranteed return if the company wasn’t profitable, gained popularity in the 1920s. They carried higher risk, but they were also less costly than “preferred” stocks, which generally guaranteed investors a dividend paying 6 to 8 percent return a year. Many buyers of these common stocks were speculators who would snatch up “bargains” that were traded enough to drive up their price. When the sales of these common stocks rose too high (sometimes, twenty to forty times their earnings), the stock was split into smaller shares (within the $10 to $250 range), so as not to price out even more potential buyers. To today’s investors, these are everyday occurrences, but in Roth’s day they were innovations whose full impact was not yet widely understood; IBM, for example, first began paying a dividend in 1925, and had its first stock split (three to one) in 1926.
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