FDR - Jean Edward Smith [151]
By the summer of 1929, America’s unprecedented prosperity began to look blotchy. Agriculture, which had been in the doldrums for years (per capita farm income was one quarter that of non-farmworkers), was joined by consumer durables and residential housing, both of which turned down sharply. Business inventories, always an economic barometer, had almost quadrupled in less than twelve months. Concurrently, the rate of consumer spending, which had risen at a rate of 7.4 percent in 1927–28, slowed to a snaillike pace of 1.4 percent.39 These developments were reflected in production and price indices. Industrial production hit a high in June and dropped off in July. Employment fell as well, along with wholesale commodity prices. The Federal Reserve Board compounded the deflationary pressure by raising interest rates a full percentage point in August, hiking the discount rate to 6 percent.
Wall Street appeared oblivious to the downturn. Stock prices, which had doubled in 1928, continued their upward spiral, fueled by margin (credit) purchases sometimes as great as 95 percent. As prices rose, investors clamored for more, pushing the market to a record high on September 3. Technology stocks led the climb. Shares of General Electric zoomed from $129 to $396; those of its competitor Westinghouse from $92 to $313; those of RCA from $93 to a breathtaking $505. Giddy commentators proclaimed the old laws of economics had been repealed: what went up did not necessarily have to come down.
In late September the market wobbled but recovered. For the next three weeks prices moved sideways on heavy volume. In retrospect it appears that knowledgeable investors were getting out. The break came Thursday, October 24. Panic selling pushed prices down 4 percent in two hours with a record 12.9 million shares changing hands. The market stabilized Friday and Saturday, but on Monday, October 28, the wave of selling resumed and the market dropped another 5 percent on volume of 10 million shares. That set the scene for what historians call Black Tuesday, October 29, 1929. The New York Stock Exchange opened down, and three million shares traded in the first half hour. Brokers sold positions for whatever they could get, and for a few ghastly minutes the exchange saw stocks for sale for which there were no buyers at any price. When the carnage ended, the market had lost one fifth of its value on an unprecedented 16.4 million sales—a record that stood for thirty-nine years. The decline continued off and on for the next three years. By mid-1932, the total value of the American stock market stood at 17 percent of its peak in September 1929.
The severity of the depression caught everyone by surprise. In the beginning, most believed the crash was a useful stock market correction. John D. Rockefeller called it a buying opportunity. Charles Schwab of Bethlehem Steel said, “Never before has American business been as firmly entrenched for prosperity as it is today.” President Hoover maintained that “the fundamental business of the country—that is, the production and distribution of goods and services—is on a sound and prosperous basis.”40
Rarely, if ever, have the nation’s economic spokesmen been more wrong. The crash may not have caused the Great Depression (economists agree that the causes were manifold), but it surely precipitated it. Farm prices, already depressed, fell by 53 percent from 1929 to 1932; net farm income by 70 percent. A cow that sold for $83 in 1929 now brought $28. Cotton sold for six cents a pound. Corn in Nebraska brought thirty-one cents a bushel, Kansas wheat thirty-eight cents. By early 1933, 45 percent of all farm mortgages were delinquent and facing foreclosure.41
In the same period, automobile production fell by 65 percent and steel by 59 percent. The nation’s gross domestic product declined from $104 billion to $74 billion. The