IN 1929 I WAS NINE YEARS OLD and only vaguely aware that something dreadful had happened on a certain Black Tuesday in October in a locale mysteriously called Wall Street. In short order, the sequel impinged on the consciousness of even a child. My father's small commercial printing business, never a robust advertisement for American capitalism, got worse and worse. As sales shrank and bad debts accumulated, my father, who had voted for Herbert Hoover in 1928 because his hero was both a Great Engineer and a Great Humanitarian, reverted to his usual mildly radical faith and began citing The Nation with increasing frequency. He greeted the New Deal with enthusiasm and became practically the first printer on his block to fly the Blue Eagle in compliance with the National Recovery Administration code for his industry.
I am led to dredge up these at best mildly interesting personal memories by an excellent anniversary commemoration of October 29, the day the bubble burst. Using standard references, memoirs and numerous interviews with survivors, the authors trace the footsteps of a cast judiciously picked to represent major actors, important and minor malefactors and ordinary Americans. Among the former are A. P. Giannini, founder of the Bank of America; Michael J. Meehan, a legendary "pool" operator; Jesse Livermore, the Stock Exchange's most famous "bear"; Jacob Raskob, promoter of the Empire State Building; and J. P. "Jack" Morgan, son of the legendary Pierpont.
Richard Whitney heads the major malefactors. This arrogant president of the Stock Exchange served a short prison term for his frauds in the wake of the Crash. Among the minor criminals were 15 officers and tellers of Detroit's Union Industrial Bank. This League of Gentlemen, as they liked to call themselves, embezzled and lost in the market $3,592,000, a sum which enen at 1979 prices approximates real money. The author's ordinary folk include a postman who delivers dividend checks but refuses to speculate; a young couple whose savings vanish in the Union Industrial Bank; A. P. Giannini's chauffeur; a Wall Street shoeshine man who trades in stock tips; and the superintendent of the Stock Exchange. Life was different for all of them after the Great Crash. s
The volume's subtitle, "a social history of the Wall Street Crash of 1929," is accurate. For speculation about causes and consequences, Galbraith's The Great Crash remains indispensable. Truth to tell, Thomas and Morgan-Witts seem uncomfortable when describing techniques of market manipulation and confused about the differences between monetary and fiscal policy.
No matter. They have caught the mood of a gaudy era. Raskob, an honorable actor in the market drama, earnestly believed in every America's right to become a millionaire. He devised a plan, never executed, for an "Equities Security Company." It would buy stocks in $500 units for "proletarians who could invest $200 a head." The proletarians would be allowed to pay off the $300 difference in monthly installments of $25 which would be financed without the sweat of honest toil from the "assuredly increased value of the stock."
As a money-creation machine and source of paper profits, the stock market functioned successfully in the presence of two essential conditions. In the first place, the bull market required that the optimists outnumber the pessimists, so that a steady buying pressure pushed the averages up and encouraged speculators to hold on to their shares. Equally important was the cooperation of the Federal Reserve in creating enough new money to keep interest rates low and allow speculators, large and small, to play the market on margin.
Nothing is forever. A few level-headed souls, like Joseph Kennedy, got out of the market in time to convert paper profits into hard cash. Most Americans, prey to foolish euphoria, normal greed and the ressurances of their financial betters, stayed in the market long enough to be wiped out. In a bull market, margin purchases produce delightful results. On a 10 percent margin, an increase of the same percentage in a stock's price translates into a profit of 100 percent. Such is the miracle of leverage. As the market drops and brokers demand more margin, leverage turns malignant. When a stock price declines 20 percent, its holder must come up with an amount equal to his original investment. Few could meet the margin calls. Paper millionaires turned into genuine paupers.
For two excellent reasons, a rerun of the Great Crash is implausible. The New Deal enacted a series of protections against fraud in the stock market and created the Securities and Exchange Commission, headed by, of all people, that reformed speculator Jospeh Kennedy, to police bulls and bears. But the second reassurance is even more conclusive: In 1979 there is no bubble to burst. For years the market has been in the dol-drums and probably a good thing too. In other words, read about 1929 in a placid spirit. The calamities of the 1980's will take a different form.