This editorial first appeared in the November 17, 1929, issue.
NOW that the big break in the stock market appears to have passed into history, those who were caught in the crash are busily and somewhat anxiously trying to look ahead and to discern what is likely to happen next. Will the market recover its equilibrium, perhaps after a few weeks or months of ups and downs, and the prices of stocks and bonds resume their upward course; or are we facing a period of general and perhaps increasing business depression with its usual accompaniment of unemployment? In the arrangement of causes and consequences, which is the cart and which is the horse? Is business now going to be bad and increasingly bad because of the stock-market break, or did the break come because business had already begun to decline and seemed certain to decline to still more depressing levels?
A good many people, including, of course, a certain number of members of Congress, have promptly insisted that Wall Street is the leader of the calamitous procession. The person who saw his margins or his savings fade away between dawn and dark, or who ruefully contemplates his engraved stock certificates worth today ten, fifty, or several hundred dollars less per share than they cost him, is prone to affirm that if it had not been for the speculators and gamblers he would not have had to take stunning losses. A wild or unscrupulous manipulation which forced the prices of even well-seasoned and high-grade securities to figures twenty, thirty, or forty times the earnings of the corporations; a swollen and constantly rising volume of brokers’ loans; fluctuating rates for call money, time loans, or ordinary commercial discounts; a flood of surplus corporation funds poured into the call market; the flotation of huge issues of new securities which the investment market found itself unable to digest; stock split-ups which invited speculation in stocks previously too high for anybody not a multi-millionaire; an endless stream of confident advice from statistical bureaus and “services” and still more confident urging from tipsters: these things, familiar market phenomena of the past two years, seem to point inevitably to Wall Street as the moving influence in the great debacle.
Yet it is worth while remembering that the stock market, however great its powers of mischief may be, is after all only a reflection, albeit with more or less of distortion, of what is actually going on in the business world. Neither the daily figures of the ticker tape, nor the weekly reports of brokers’ loans, nor the ups and downs of the call-money rate are a sufficient explanation of the recent catastrophe. There have been for some time warning signs that the business of the country was not altogether healthy. The great automobile industry, for example, has seen its profits menaced by severe competition, and the manufacture of motor accessories has in turn felt the pinch. Economy in the use of railway equipment has reacted upon the steel industry by keeping down the demand for locomotives and cars. Trucks and passenger automobiles have cut heavily into the revenues of the railways, the building industry has obviously been overdone, the textile industry has long been in the doldrums, the over-production of oil has hung over the market like a dark cloud, price cutting has invaded tobacco products, radios, and airplanes, State and municipal indebtedness has gone up by leaps and bounds, and the federal government has thought it necessary to set aside half a billion dollars of the taxpayers’ money to keep the farmers from going completely under.