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.
All this means a serious dislocation of the balance between production and consumption, a widespread readjustment of industry to meet new conditions, and an unprecedented expansion of the credit structure. Thanks to machinery and credit, the ability to produce far exceeds the ability to consume, and the struggle for survival has never been so keen. The bursting of the stock-market bubble, blown to the limit by speculators and a public blind to the fact that what goes up may also come down, has laid bare some of the major weaknesses of the economic situation. Does it mean, however, that the United States, having overreached itself and lost its head in the prosperity scramble, is now going to the dogs? Is the country headed for calamity, with the stock market carrying the flag?
We think not. It would be strange if the violent collapse of security prices which has lately occurred, and the heavy losses which rich and poor alike have unquestionably sustained, were not followed by a period of relative stagnation, and if that period were not somewhat prolonged. The bankers who are carrying the brokers, and the brokers who are carrying their customers, will need more than a few weeks to straighten out their affairs. It may very well be that the next six months will see a gradual slowing down of industry, trade, and employment in many important directions, for the simple reason that there will be less money to spend, less collateral on which to borrow, less ability to take on speculative commitments. Over against such a recession, however, are to be set some hopeful facts. There was no “panic” in the stock market even when the downward plunge was at its worst. Not a single important banking or brokerage house has failed, industry as a whole shows as yet little more than a normal seasonal recession, and some unexpectedly good reports have been made even by steel and automobile corporations. Foreign trade remains good, corporation surpluses are still large, and corporations that have not paid dividends before or that have not paid any for some time are preparing to pay them now. Paper values in many cases have evaporated, but real values remain intact.
The great task of the next few months is the restoration of confidence–confidence in the fundamental strength of the financial structure notwithstanding the strain that has been put upon it, confidence in the essential soundness of legitimate industry and trade. Criticism of Wall Street will not help much, and neither great banking establishments nor well-heeled investors are alone sufficient for the need. The public that has allowed itself to be drawn into the stock market at unprecedented cost to its pocket must recover its good sense, and the best service that the average man can render to that end is to keep his head and cheerfully shoulder his own share of the blame.