Financial History Issue 131 (Fall 2019) - Page 13

FROM CRASH Scrip TO The Stock Market Collapse of 1929 and the Rise of Fake Money By Ralph Blumenthal It was a Tuesday, exactly 90 years ago on October 29. Wall Street was thronged with pulsing crowds, giving off an omi- nous roar. The air was electric with panic. The market opened in free fall. Unpro- cessed sell orders overflowed the waste- baskets. Ashtrays were filled with half- smoked cigarettes. A record 16½ million shares were traded—almost four million more than the previous record, set the prior Thursday, a one-day loss of value, in today’s dollars, of nearly $208 billion. But as bad as the day was, the Crash was a process, a succession of wild swings that turned sharply negative on Thursday, Octo- ber 24, 1929, when panicked sellers sold off nearly 13 million shares, sending the Dow (expanded the year before to an index of 30 leading stocks, from 12) diving 11%. Stocks bounced back, but the following Monday they plunged again, and the next day, Black Tuesday, the bottom fell out. The four days of trading had cost investors $30 billion—in today’s money nearly half a trillion dollars, and almost 10 times more than the entire 1929 federal budget. By November, the equivalent of $1.5 tril- lion had disappeared from the economy. The Dow had hit its record high of 381 in September 1929, up six-fold since 1921. By the summer of 1932, it was down to almost 41, having lost nearly 90% of its value. By 1933 nearly 13 million Americans, almost a quarter of the labor force, were jobless. Wall Street had seen trouble before. Notably the Panic of 1907 and the 1920 bombing outside JP Morgan & Co. that killed 38 people and injured more than 300. But those disasters came and went. The Crash of ’29 was different. It seemed prolonged and endless and all but took the country down with it. In reality, there were many market downs and ups before and after the Crash. Even after the shock of Black Tuesday, the plunge of prices halted by spring 1930, and in April the Dow was 50% above its November low. In June 1930, President Herbert Hoover told a delegation of wor- ried clergy, “You have come 60 days too late. The depression is over.” But of course it was only beginning. The roots of the 1929 disaster were deep. There had been a recession after World War I. Inventories built up during the war failed to find a market overseas, leading to a drop in exports. Farm prices were particularly hard hit. In ravaged Europe, conditions were worse. Defeated Germany suffered a catastrophic inflation that paved the way for Hitler. But in the United States, the long-term problems were hard to see behind what became known, after the death of Warren Harding in 1923, as “the Coolidge boom.” It was fueled by several things. The Federal Reserve System, created in 1913, began reducing its discount rate, from 7% Freeport, Long Island Unemployment Relief Committee 25 cents scrip, undated.  |  Fall 2019  |  FINANCIAL HISTORY  11