ber, brokers' loans-an index of margin buying-topped the $6 billion mark. Business leaders meanwhile completed with each other in expressions of optimism, and Washington displayed no concern.

III

September saw some minor setbacks. Yet through October brokers looked optimistically ahead to the moment when stocks would resume their upward climb. Then on Wednesday, October 23, there was an unexpected and drastic break, with securities suddenly unloaded in quantity, prices falling, and acute pressure on margin traders. For a moment, Wall Street was shaken, and the anxiety was suddenly infectious. The next day, selling orders began to stream down on the stock exchange in unprecedented volume, and prices took a frightening plunge. For a few ghastly moments the exchange saw stocks on sale for which there were no buyers at any price. As panic spread, the exchange decided to close the visitors' gallery; among the observers that morning had been the former British Chancellor of the Exchequer, Winston S. Churchill. The tickers fell helplessly behind in recording transactions on the floor; and, as the confusion communicated itself through the country, the instinct to unload threatened to turn into a frenzy. Down, down, down: how long could the market take it? Around noon a group of worried men gathered in the office of Thomas W. Lamont of Morgan's; it included four of New York's great bankers (among them, Charles E. Mitchell of the National City Bank and Albert H. Wiggin of the Chase). Each was prepared to contribute $40 million on behalf of their banks to bolster the market. An hour or so later Richard Whitney, a broker for Morgan's and vice president of the exchange, walked onto the floor to bid 205 for 25,000 shares of U.S. Steel, then available at 1932. For a moment, backed by the bankers' pool, stability seemed to return.

The next day came a torrent of reassuring statements-from bankers, from economists, from the Treasury Department, above all, from the White House itself. "The fundamental business of the country," said President Hoover, "that is, production and distribution of commodities, is on a sound and prosperous basis." And, as prices held for the rest of the week, the bankers quietly fed back into the market the stocks they had bought on Black Thursday, strengthening their own position against further storms. (Whitney had not even bought the United States Steel stock; the gesture of bidding was enough.) The weekend gave the forces of fear and liquidation time to do their work. As the banks had protected themselves against the brokers, so the brokers now sought to protect themselves against their customers, and especially against those they were carrying on the margin. The result on Monday was a new outburst of forced sales, a new explosion of gloom and panic. On that day alone, General Motors stock lost nearly $2 billion in paper value. The market closed with foreboding. The next day the exchange had barely opened when the rout began. Soon it was like an avalanche, vast numbers rushing to get out of the market with whatever could be salvaged from the general debacle. Brokers sold stock at any price

they could get. By noon 8 million shares had changed hands; by closing time, the exchange had broken all records with an unprecedented 16 million shares. During the day, the governors of the exchange had called a meeting, crowding into a secluded office, sitting and standing on tables, lighting cigarettes and nervously discarding them till the room was stale with smoke. Most wanted to close the exchange. But the governors decided that it must be kept open.

For a moment October 30-Wednesday-brought new hope. The newspapers were once again plastered with optimism: Dr. Julius Klein, the President's personal economic soothsayer, John D. Rockefeller, John J. Raskob, all beamed with confidence about the future. As prices steadied, Richard Whitney took advantage of the interval of calm to announce that the exchange would be open only briefly on Thursday and not at all for the rest of the week. But the flickering hope of stabilization turned out to the final delusion. Variety summed it up in the headline of its issue on October 30: "Wall St. Lays an Egg."

When the exchange reopened the next week, the downward grind resumed, leaving in its wake a trail of exploded values. By midNovember the financial community began to survey the wreckage. In a few incredible weeks, the stocks listed on the New York Exchange had fallen over 40 percent in value-a loss on paper of $26 billion. The new era had come to its dismaying end.

IV

As perspective has enabled economists to disentangle the causes of the collapse, the following points have come to seem most crucial: (1) Management's disposition to maintain prices and inflate profits while holding down wages and raw material prices meant that workers and farmers were denied the benefits of increases in their own productivity. The consequence was the relative decline of mass purchasing power. As goods flowed out of the expanding capital plant in ever greater quantities, there was proportionately less and less cash in the hands of buyers to carry the goods off the market. The pattern of income distribution, in short, was incapable of long maintaining prosperity.

(2) Seven years of fixed capital investment at high rates had "overbuilt" productive capacity (in terms of existing capacity to consume) and had thus saturated the economy. The slackening of the automotive and building industries was symptomatic. The existing rate of capital formation could not be sustained without different governmental policies-policies aimed not at helping those who had money to accumulate more but at transferring money from those who were letting it stagnate in savings to those who would spend it.

(3) The sucking off into profits and dividends of the gains of technology meant the tendency to use excess money for speculation, transforming the stock exchange from a securities market into a gaming house.

(4) The stock market crash completed the debacle. After Black Thursday, what rule was safe except "Sauve qui peut?" And businessmen, in trying to save themselves, could only wreck their systems in trying to avoid the worst, they rendered the worst inevitable. By

shattering confidence, the crash knocked out any hope of automatic recovery.

(5) In sum, the Federal Government had encouraged tax policies that contributed to oversaving, monetary policies that were expansive when prices were rising and deflationary when prices began to fall, tariff policies that left foreign loans as the only prop for the export trade, and policies toward monopoly which fostered economic concentration, introduced rigidity into the markets and anaesthetized the price system. Representing the businessmen, the Federal Government had ignored the dangerous imbalance between farm and business income, between the increase in wages and the increase in productivity. Representing the financiers, it had ignored irresponsible practices in the securities market. Representing the bankers, it had ignored the weight of private debt and the profound structural weaknesses in the banking and financial system. Seeing all problems from the viewpoint of business, it had mistaken the class interest for the national interest. The result was both class and national disaster.

[From "Only Yesterday," Harper & Bros., Publishers]

CRASH

(BY FREDERICK LEWIS ALLEN)

Early in September the stock market broke. It quickly recovered, however; indeed, on September 19 the averages as compiled by the New York Times reached an even higher level than that of September 3. Once more it slipped, farther and faster, until by October 4 the prices of a good many stocks had coasted to what seemed first-class bargain levels. Steel, for example, after having touched 26134 a few weeks earlier, had dropped as low as 204; American Can, at the closing on October 4, was nearly 20 points below its high for the year; General Electric was over 50 points below its high; Radio had gone down from 11434 to 8212.

A bad break, to be sure, but there had been other bad breaks, and the speculators who escaped unscathed proceeded to take advantage of the lesson they had learned in June and December of 1928 and March and May of 1929: when there was a break it was a good time to buy. In the face of all this tremendous liquidation, brokers' loans as compiled by the Federal Reserve Bank of New York mounted to a new high record on October 2, reaching $6,804 million-a sure sign that margin buyers were not deserting the market but coming into it in numbers at least undiminished. (Part of the increase in the loan figure was probably due to the piling up of unsold securities in dealers' hands, as the spawning of investment trusts and the issue of new common stock by every manner of business concern continued unabated.) History, it seemed, was about to repeat itself, and those who picked up Anaconda at 10934 or American Telephone at 281 would count themselves wise investors. And sure enough, prices once more began to climb. They had already turned upward before that Sunday in early October when Ramsay MacDonald sat on a log with Herbert Hoover at the Rapidan camp and talked over the prospects for naval limitation and peace.

Something was wrong, however. The decline began once more. The wiseacres of Wall Street, looking about for causes, fixed upon the collapse of the Hatry financing group in England (which had led to much forced selling among foreign investors and speculators), and upon the bold refusal of the Massachusetts Department of Public Utilities to allow the Edison Co. of Boston to split up its stock. They pointed, too, to the fact that the steel industry was undoubtedly slipping, and to the accumulation of "undigested" securities. But there was little real alarm until the week of October 21. The consensus of opinion, in the meantime, was merely that the equinoctial storm of September had not quite blown over. The market was readjusting itself into a "more secure technical position."

SECTION 2

In view of what was about to happen, it is enlightening to recall how things looked at this juncture to the financial prophets, those gentlemen whose wizardly reputations were based upon their supposed ability to examine a set of graphs brought to them by a statistician and discover, from the relation of curve to curve and index to index, whether things were going to get better or worse. Their opinions differed, of course; there never has been a moment when the best financial opinion was unanimous. In examining these opinions, and the outgivings of eminent bankers, it must furthermore be acknowledged that a bullish statement cannot always be taken at its face value: few men like to assume the responsibility of spreading alarm by making dire predictions, nor is a banker with unsold securities on his hands likely to say anything which will make it more difficult to dispose of them, unquiet as his private mind may be. Finally, one must admit that prophecy is at best the most hazardous of occupations. Nevertheless, the general state of financial opinion in October 1929 makes an instructive contrast with that in February and March 1928, when, as we have seen, the skies had not appeared any too bright.

Some forecasters, to be sure, were so unconventional as to counsel caution. Roger W. Babson, an investment adviser who had not always been highly regarded in the inner circles of Wall Street, especially since he had for a long time been warning his clients of future trouble, predicted, early in September, a decline of 60 or 80 points in the averages. On October 7 the Standard Trade & Securities Service of the Standard Statistics Co. advised its clients to pursue an "ultraconservative policy," and ventured this prediction: "We remain of the opinion that, over the next few months, the trend of common stock prices will be toward lower levels." Poor's Weekly Business and Investment Letter spoke its mind on the "great common stock delusion" and predicted "further liquidation in stocks." Among the big bankers, Paul M. Warburg had shown months before this that he was alive to the dangers of the situation. These commentators-along with others such as the editor of the Commercial and Financial Chronicle and the financial editor of the New York Times-would appear to deserve the 1929 gold medals for foresight.

But if ever such medals were actually awarded, a goodly number of leather ones would have to be distributed at the same time. Not necessarily to the Harvard Economic Society, Although on October 19, after having explained that business was "facing another period of readjustment," it predicted that "if recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Reserve System would take steps to ease the money market and so check the movement." The Harvard soothsayers proved themselves quite fallible: as late as October 26, after the first wide-open crack in the stock market, they delivered the cheerful judgment that "despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation." This judgment turned out, of course, to be ludicrously wrong; but, on the other hand, the Harvard Economic Society was far from being