CRASH AND DEPRESSION

In the heart of New York City lies a narrow street enclosed by the walls of high office buildings. Its name is Wall Street.

One Thursday afternoon in October 1929, a workman outside an upper floor window of a Wall Street office found himself staring into the eyes of four policemen. They reached out to catch hold of him. "Don't jump!" shouted one of the policemen. "It's not that bad." "Who's going to jump?" asked the surprised worker. "I'm just washing windows!"

To understand this incident we need to look at what had been happening in Wall Street in the months and years before that October afternoon in 1929.

Wall Street is the home of the New York Stock Exchange. Here dealers called stockbrokers buy and sell valuable pieces of paper. The pieces of paper are share certificates. Each certificate represents a certain amount of money invested in a company.

Every year in the 1920s the sales of cars, radios and other consumer goods rose. This meant bigger profits for the firms which made them. This in turn sent up the value of shares in such firms.

Owning shares in a business gives you the right to a share of its profits. But you can make money from shares in another way. You can buy them at one price, then, if the company does well, sell them later at a higher one.

More and more people were eager to get some of this easy money. By 1929 buying and selling shares - "playing the market" - had become almost a national hobby. You could see this from the rise in the number of shares changing hands. In 1923 the number was 236 million; by 1928 it had grown to 1,125 million.

Like most other things in the United States in the 1920s, you could buy shares on credit. A hundred dollars cash would "buy" a thousand dollars'  worth of shares from any stockbroker. Many people borrowed large amounts of money from the banks to buy shares in this way - "on the margin", as it was called.

Most of these "on the margin" share buyers were really gamblers. Their idea was to spot shares that would quickly rise in value, buy them at one price and then resell at a higher one a few weeks later. They could then pay back the bank, having made a quick profit.

By the fall of 1929 the urge to buy shares had become a sort of fever. Prices went up and up. One visitor to Wall Street was reminded of a street fight, as stockbrokers pushed and scrambled to buy shares for their customers.

Yet some people began to have doubts. The true value of shares in a business firm depends upon its profits. By the fall of 1929 the profits being made by many American firms had been decreasing for some time. If profits were falling, thought more cautious investors, then share prices, too, would soon fall. Slowly, such people began to sell their shares. Day by day their numbers grew. Soon so many people were selling shares that prices did start to fall.

At first many investors held on to their shares, hoping that prices would rise again. On Thursday, October 24, 1929 - Black Thursday - 13 milllion shares were sold. On the following Tuesday, October 29 - Terrifying Tuesday - 16.5 million were sold.

By the end of the year the value of all shares had dropped by $ 40,000 million. Thousands of people, especially those who had borrowed to buy on the margin, found themselves facing debt and ruin. Some committed suicide. This was what the policemen thought that the window cleaner was planning.

This collapse of American share prices was known as the Wall Street Crash. It marked the end of the prosperity of the 1920s.

"What has gone wrong?" people asked. Some blamed the blindness of politicians for the Crash, others the greed of investors and stockbrokers. But it had a more important cause. The fact was that by the end of the 1920s not enough people were buying the products of America's expanded industries. Why? Because too little of the United States' increased wealth was finding its way into the hands of the country's workers and farmers. The most important cause of the Wall Street Crash was simply this - that too few Americans were earning enough money to buy the goods that they themselves were producing.

The Crash made people uncertain about the future. Many decided to save any money they had instead of spending it on such things as new cars and radios. American factories were already making more goods than they could sell. Now they had even fewer customers.

The Crash affected their sales to foreign countries, too. In the 1920s American goods had sold well overseas, especially in Europe. But countries such as Britain and Germany had not prospered after the war as the United States had. They had often paid for their purchases with money borrowed from American banks. After the Wall Street Crash the banks wanted their money back. European buyers became short of cash and American overseas sales dried up almost completely. Goods piled up unsold in factory warehouses. Employers stopped employing workers and reduced production.

By the end of 1931 nearly eight million Americans were out of work. Unlike unemployed workers in countries such as Germany and Britain, they received no government unemployment pay. Many were soon without homes or food and had to live on charity. Millions spent hours shuffling slowly forward in "breadlines." Here they received free pieces of bread or bowls of soup, paid for by money collected from those who could afford it.

By 1932 the position was worse still. Thousands of banks and over 100,000 businesses had closed down. Industrial production had fallen by half and wage payments by 60 percent. New investment in industry was down by 90 percent. Twelve million people, one out of every four of the country's workers, were unemployed. The city of Chicago alone had almost three-quarters of a million workers without jobs. This was four out of ten of its normal working population. The position was just as bad in other places.

The Depression was easiest to see in the towns, with their silent factories, closed shops and slowly moving breadlines. But it brought ruin and despair to the farmlands also. Farmers simply could not sell their produce. With the number of people out of work rising day by day, their customers in the cities could no longer afford to buy. If anyone did buy, it was at the lowest possible prices. The same was true of the farmers' overseas customers.

Many farmers grew desperate. They took out shotguns and banded together to drive away men who came to throw them off their farms for not paying their debts. How can we pay, the farmers asked, when nobody will give us a fair price for our crops? They paraded through the streets in angry processions. They waved placards with words such as: "In Hoover we trusted, now we are busted."

By 1932 people of every kind - factory workers, farmers, office workers, store keepers - were demanding that President Hoover take stronger action to deal with the Depression.

Hoover believed that he could do two things to end the Depression. The first was to "balance the budget" - that is, to make sure that the government's spending did not exceed its income. The second was to restore businessmen's confidence in the future, so that they would begin to take on workers again.

Time and time again in the early 1930s Hoover told people that recovery from the Depression was "just around the corner." But the factories remained closed. The breadlines grew longer. People became hungrier. To masses of unemployed workers Hoover seemed uncaring and unable to help them.

Then, Franklin D. Roosevelt came on the scene. Roosevelt was the Governor of the state of New York. Years earlier he had been crippled by polio. But in 1932 the Democratic Party chose him to run against President Hoover in that year's election for a new president.

Roosevelt gave an impression of energy and determination, and of caring deeply for the welfare of ordinary people. All over the United States anxious men and women felt that here at last was a man who understood their troubles, who sympathized with them - and, most important of all, who sounded as if he would do something to help them.

Roosevelt's main idea was that the federal government should take the lead in the fight against the Depression. He told the American people: "The country needs and demands bold, persistent experimentation. Above all try something." He promised them a "New Deal."

Hoover condemned Roosevelt's policies of greater government action. He was sure that such policies would only make things worse. They would, he said, "destroy the very foundations of our American system." They would cause people to lose their ability to stand on their own feet and bear their own responsibilities. If they were introduced, he prophesied grimly, "grass will grow in the streets of a hundred cities, a thousand towns."

The majority of the American people ignored Hoover's gloomy warnings. On November 9, 1932, they elected Franklin Roosevelt as the next President of the United States by the largest majority in American history. In only six of the nation's forty-eight states did Hoover gain a majority of the votes. In the other forty-two states the people chose Roosevelt.

Bryn O'Callaghan: An illustrated history of the USA; Longman, Harlow, 1990/1996, page 96 ff.