The President and Fellows of Harvard College The Stock Market Crash of 1929: A Review Article Author(s): Maury Klein Source: The Business History Review, Vol. 75, No. 2 (Summer, 2001), pp. 325-351 Published by: The President and Fellows of Harvard College Stable URL: http://www.jstor.org/stable/3116648 Accessed: 06/02/2010 14:26 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=pfhc. 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The President and Fellows of Harvard College is collaborating with JSTOR to digitize, preserve and extend access to The Business History Review. http://www.jstor.org Maury Klein The Stock MarketCrash of 1929: A Review Article The stock marketcrash of 1929, a majortraumathat still hauntsthe nationalmemory,has receivedsurprisinglylittle attentionfrom scholarsin seventyyears and has produced even less agreementas to its causesandconsequences.This reviewof the literaturesuggeststhatthe disagreementsand debates over the crash reveal as much about what can andcannotbe knownfor certainaboutthe event as they do aboutpotentialanswersto the mysteriesof the crash. Few historical problemscontinueto perplexscholarsmorethanthe Great Crashof 1929. More than seventy years later, the story of the crashremainswell knownbut continuesto defy clearor convincing explanation.Three questionsin particularremainas vivid and elusive today as they did then: What caused the crash?What was the relation of the crash to the long depressionthat ensued? Could such a crash and depressionhappenagain?In our own era,when an aged but seeminglyindomitablebull marketseems at last to have floundered,the last questionhas takenon an urgencythat transcendsmere scholarship.In reviewingthe literatureon this subject, this article explores not only the range of positions taken on these questions but also the broader issue of why so little agreementhas been reached. It suggests as well some ways in which the crash illustratescertain limitationsin the approachesused by scholarsto tacklesuch historicalquestions. Unlike most marketdisasters,the Great Crashwas not the event of one day but a series of events stretched initially across the week from Wednesday,October 23, throughThursday,October 31. During these eight franticsessions, a total of nearly 70.8 million shareswere traded-more than had changed hands in any month prior to March MAURYKLEIN is professor of history at the Universityof Rhode Island. Business History Review 75 (Summer 2001): 325-351. ? 2001 by The President and Fellows of Harvard College. Maury Klein / 326 1928. The Dow Jones average dropped 53 points, from 326.51 to 273.51 and the New YorkTimescombinedaverage,50.21 points:from 280.21 to 230.1 In broaderterms, the crash extended until November 13, by which time the Dow had fallen another74.82 to 198.69 and the Times average,another 63.8-to 166.15. Altogetherthe Dow lost 39 percent and the Timesaverage,41 percent. Of the seven abbreviated trading sessions during those bleak November days, only one registered a gain.2Althoughthe dramaof the Octobersessions remainsthe popular image of the crash, contemporaryobserverspaid almost as much attentionto the followingtwo weeks as a harbingerof what the crashmeant for the future. Perhaps the most surprisingaspect of the literaturecovering an event that ranks so high on the roster of nationaltraumasis its paucity. While many books touch on the event as part of some larger study, only a handful have been devoted entirely to the crash, its causes and aftermath. Some have offered intriguingexplanationsor hypotheses, but none has providedconvincinganswers.As David M. Kennedy observed, "The disagreeable truth ... is that the most re- sponsible students of the events of 1929 have been unable to demonstrate an appreciable cause-and-effect linkage between the Great Crash and the Depression."3Nor have they explained satisfactorily what caused the crash or the relevance, if any, of that experience to later marketbehavior. Causes of the Crash Within months after the crash, financialwriters and economists tried to fathomthe event and its significancefor the future.One of the first,H. ParkerWillis,singledout the Federal ReserveSystemas "fundamentallyand primarilya cause of the panic of 1929 by permittingthe use of bankingfunds in an undulylarge degree and without adequate 'Throughout this article, all figures for the Dow are taken from Phyllis S. Pierce, ed., The Dow Jones Averages 1885-1995 (Chicago, 1996), which has no page numbers. The Times figures are drawn from the newspaper itself; the combined average included twenty-five industrialsand twenty-five railroads. 2The New York Stock Exchange's board of governors shortened daily trading sessions from five to three hours and eliminated the Saturdayshort session to allow brokerages and others to catch up on the immense backlog of paperwork generated by the crash. Normal tradinghours and days resumed on November 26. The Exchange also closed on Tuesday,November 5, for election day. 3 David M. Kennedy, Freedomfrom Fear: The American People in Depression and War, 1929-1945 (New York,1999), 39. The Stock MarketCrash of 1929 / 327 protection, in promoting speculation."4The Fed became a favorite scapegoatfor many critics, first for its easy money policy in 1927 and then for its failureto raiseinterestratesquicklyenough in March1928 and during 1929, despite manyurgent appealsfor it to do so.5 One of the Federal Reserve Board'sown members,Adolph Miller,called the 1927 reduction"one of the most costly errorscommittedby it or any other bankingsystem in the last 75 years."Inflationof credit became an earlyand popularentrantas a cause, but tight credit soon joined it as differentcriticsblamed the Fed for not tighteningcredit fast or far enough in 1929, or for tighteningit too much.6 IrvingFisher of Yale, one of era'sbest-knowneconomists,took a differenttack in a book completed shortlyafter the crash.7Laterwriters have caricaturedFisheras a posterchild for the illusionsthat fueled the bull market, but his analysis proved deeper than anything attempted for anotherthree decades.8Brushingaside the simplisticexplanationsof politiciansand others, Fisher offered a detailed portrait of economic and financialfundamentals.He was the first analystto compile a useful list of the causes for the crash given by a varietyof othersand to suggesta more complexscenariofor its onset.9 4H. ParkerWillis, "Who Caused the Panic of 1929?"North American Review 229 (Feb. 1930), 177. Emphasis is in the original. Willis was editor of the New YorkJournal of Commerce. For some other early articles, see Albert Atwood, "The Appetite for Stock,"Saturday Evening Post (April 19, 1930), and "The Future of Stock Speculation,"Saturday Evening Post (Sept. 13, 1930); Howard Florance, "What Really Happened?" Review of Reviews (Jan. 1930); John T. Flynn, "The Birthday of the Slump," Forum (Nov. 1930); Paul W. Garrett, "The Jazz Age in Finance,"North American Review (Feb. 1930); Edwin Lefevre, "ATrip on the Magic Carpet," Saturday Evening Post (Feb. 1, 1930), and "The Long and the Short of It," Saturday Evening Post (Dec. 13, 1930); Louis T. McFadden, "Convalescent Finance," SaturdayEvening Post (Feb. 15, 1930); Will Payne, "Deflation,"Saturday Evening Post (May 3, 1930); Burton Rascoe, "The Grim Anniversary,"New Republic (Oct. 29, 1930); George E. Roberts, "Lessons of the Stock Panic,"Outlook (Jan. 8, 1930); and Max Winkler,"Payingthe Piper,"North American Review (Jan. 1930). 5 For more detail and differing views on these events and the role of the Federal Reserve Board during the 1920s, see the relevant chapters in the following books: Lester V. Chandler, Benjamin Strong: Central Banker (Washington,D.C., 1958); Milton Friedman and Anna Jacobson Schwartz,A Monetary History of the United States, 1867-1960 (Princeton, 1963); and Elmus R. Wicker,Federal ReserveMonetary Policy, 1917-1933 (New York,1966). 6Chandler,Benjamin Strong, 438. Miller made the statement in 1931. 7 Irving Fisher, The Stock MarketCrash-and After (New York,1930). 8For a sketch of Fisher, see Irving Norton Fisher, My Father Irving Fisher (New York, 1956). Fisher is most often mocked for his famous statement, made on the eve of the crash: "Stockprices have reached what looks like a permanently high plateau."But the only source given for that remark is Edward Angly, Oh Yeah? (New York, 1931), 38, a satiricalvolume "Compiled from Newspapers and Public Records." In most cases, Angly gave at least the source of the statement, but for this one he did not. 9Fisher, The Stock Market Crash-and After, 31-55. The potential causes included the wholesale liquidation of foreign holdings driven by falling prices on the British, French, and German exchanges;the use and abuse of unregulated investment companies by major com- Maury Klein / 328 Fisher singled out the huge outpouringof new securityofferings, which peaked in September and October, as hurling "the top-heavy marketinto the abyss."He agreedthat the Fed had erredby not raising interest rates sharplybetween the fall of 1928 and the springof 1929. Unlike most postmortemanalysts,however,Fisher defended the high level of stock prices priorto the run-upduringthe summerof 1929 as reflectinggenuine gainsin the economy.He presenteda detailedargument that the economy had shown extraordinarygrowthprior to the fall of 1929 and concluded,"Theoverextensionthat producedthis violent reactionwas not all foolish."'? Fisher also saw other, more complex, factorsbehind the panic. A pioneer in monetarytheory,he noted that an outflowof $500 millionin gold during 1927 led New YorkCity banksto withdrawfrom the call loan market,only to havetheirplace takenby corporations,individuals, and foreignerslured by high interest rates. He endorsed the view of George E. Robertsof NationalCity Bankthat the market"hadfound a way to go aroundthe bankingsystem to the originalsources of funds, that is, in savings,profitsand other free funds that would normallygo into permanentinvestments."This led to a "rebound"effect, in which the high returns on call loans brought Americancapital home from overseas, forcing foreign banks to raise their rates and in some cases impose embargoeson gold exportsto the United States.By September 1929, the growing financialcrises abroad,spurredpartly by the collapse and bankruptcyof Clarence Hatry'sindustrialempire in Great Britain,led some foreignholdersto liquidatetheirAmericanholdings." One of the era's most astute financialwriters, AlexanderDana Noyes, saw the crashvery differently.Noyes served as financialeditor mercial banks;the overvaluationof common stock; the onset of a business recession that autumn; the federal tax on capital gains; the refusal of the MassachusettsPublic Service Commission to allow a split in the Edison Company of Boston's stock; the high level of brokers' loans; the enormous sums put into the call loan market by corporationsand individuals;poor margin calculations;fear of the impending Smoot-Hawley tariff;the glut of undigested securities in the market, most of them for investment trusts; the withdrawalof gold from New York;and the "boom"or New Era enthusiasm that led investors to believe prices could only despite warning signs to the contrary. go higher 0Ibid., 5-6, 65-197, 233-7. "If it can be shown that business was in an extraordinarily healthy condition . .. during these years and up to the present," Fisher asserted, "it will be seen that the new plateau of stock prices which remains after the panic higher than all previous plateaus, was justified, even though the peak of September, 1929, rose too high." n Ibid., 226-31. Canada and Argentina imposed gold embargoes. For a brief account of the Hatry failure, see Robert T. Patterson, The Great Boom and Panic: 1921-1929 (Chicago, 1965), 92-4. For Fisher'sbackgroundas a monetarytheorist, see the profile of him in John A. Garratyand Mark C. Carnes, eds., American National Biography (New York, 1999), vol. 8: 12-15. The Stock Market Crash of 1929 / 329 of the New YorkTimesfrom 1920 until his death in 1945. No journalist knewWall Streetbetter than Noyes or took a more skepticalview of it. During 1928 and 1929, Noyes had warned Timesreaders repeatedly "inthe strongestand most emphaticlanguage,againstthe prevalentillusion of perpetuallyrisingprices and perpetuallyincreasingprosperity."In a 1938 memoirhe characterizedthe "wildspeculationandpanic of 1929" as bringing a "suddenrecognitionof economic realities. It punctured,almostovernight,the ill-fatedStockExchangeillusions.No more was heardof the new economicera."12 Concedingthat the FederalReserve'seasy money decisionin 1927 provedwrongin retrospect,Noyes arguedthat it seemed reasonableat the time. "Employment,buildingconstruction,railwayfreightloadings and averageprices of commoditieswere all at the lowest in two years," he noted, and the FederalReserveBoard'sown monthlyproductionindex had dropped below the 1923-25 averagefor the first time since 1924. A more importantconsiderationto Noyes was an exportsurplus that totaled $2.7 billion for four years, higher than any prior to 1914. This surplushelped spur a sharp increase in subscriptionsto foreign loans, many of them from South Americaand CentralEurope, which were "ofqualitymuch inferiorto the loans .. made to the greatWestern Europeangovernments."13 ThroughoutNoyes'sobservations,both at the time and later, ran the theme of an age swept into the financialabyssby its illusions."Anyone who was close to the Wall Street scene," he recalled, "couldnot mistake the psychological change . . . even among seasoned profes- sional speculatorswho had lived through many similarillusions."So powerfulwas its hold that those who dared to challenge the New Era mantrawere reviledor ignored.In March1929, bankerPaulWarburg blastedthe "orgiesof unrestrainedspeculation"and predictedthat, unless checked, they would "bringabout a general depressioninvolving the entire country."As Noyes rememberedit, the warning"firstcaused alarm,then indignation,andpresently,when the stockmarketresumed its upwardrush, expressionof superciliouscontempt."The resurgence of the marketearly in 1930 revived hope, but when it sank again in 2AlexanderDana Noyes, The MarketPlace:Reminiscencesof a Financial Editor (Boston, 1938), 337, 351. For a brief and inadequate sketch of Noyes, see his obituaryin the New York Times, April 23, 1945. Before coming to the Times, he had long held the same position with the New YorkEvening Post. A close reading of the Times for 1928-29 confirms that Noyes did consistently warn againstwhat he considered the illusions of his era. 13Ibid., 315-17, 358. In 1927 alone, Noyes noted, the American market subscribed to loans from more than twenty governments as well as a hundred company loans offered by firms in seventeen foreign countries. Maury Klein / 330 June, "illusion disappeared. The harsh realities of the whole situation began to present themselves."14 Illusionwas for Noyes the fuel drivingthe orgy of speculationthat produced the crash. The breadthof its influence could be seen in "a wholly new phenomenon. Workingmenwhose imaginationor covetousnesshad been arousedby the 'New Eratalk,"'found access to speculationeasy througha "country-widenetworkof branchoffices set up by Wall Street commissionhouses."Some large corporationsoffered employees plans for investingin the company'sstock. On Wall Street, leading speculators,who had long been creaturesof the dark, "came personallyinto the limelight,givingout interviewsand radiobroadcasts which the newspapers printed, declaring that Stock Exchange prices were too low."The marketmoved to the center of the culture, an absorbing topic of conversationon Main Street no less than on Wall Street.15 Two other books exerted far more influence on later writersthan either Fisher or Noyes and did much to shape the prevailing view of the stock-marketcrash: Only Yesterday(1931) by Frederick Lewis Both Allen and The Great Crash (1955) by John Kenneth Galbraith.16 have the virtue of being lively, well-written accounts that entertain as well as inform.17 Allen's work, like that of Fisher, is even more remarkable for having been written immediately after the event. With barely a hint of the long, darkdepressionthat would soon settle over the land, Allen depicted the 1920s as a strikingnew era in Americanlife, marked by a "revolutionin mannersand morals,"boundedby the end of World WarI on one side and the GreatCrashon the other.18 14 Ibid., 323-4, 343; Commercialand Financial Chronicle, March 9, 1929, 1444. "In aeronautics the public is inclined to look upon the art of rising into the air as the sole accomplishment," Warburgnoted. "The layman is apt to overlook the fact that the mastery of the art of is of equal if not greater importance." descending 15 Ibid., 325-7. 16Frederick Lewis Allen, Only Yesterday:An Informal History of the 1920's (New York, 1931); John Kenneth Galbraith,The Great Crash (Boston, 1955). I do not use the term "popular literature"in any pejorative sense but rather as a designation for works that reached a broad audience and often, as in the case of these two books, do not include thorough documentation. Allen has no notes but includes an appendix on sources; Galbraithprovides some notes and a brief note on sources. sparse 7Allen's depiction of the social history of the 1920s became the template for that era much as did Matthew Josephson'sportraitof the Robber Barons three years later. Unlike Josephson's, however, Allen'swork is remarkablefor how much he got right about the era and its people. Indeed, Allen published a far more illuminatingportrait of the business and Wall Street titans only a year after Josephson'sbook appeared. See Frederick Lewis Allen, The Lords of Creation (New York,1935). 18Allen, Only Yesterday,73. These citations come from the 1964 paperback edition of the work. The Stock Market Crash of 1929 / 331 The new era portrayedby Allen was drivenby real improvements in the qualityof life for a wideningstreamof people and by a growing faith that prosperity,with all its benefits, would continue its upward progress indefinitely.The crash shattered this illusion with shocking finalityand replacedit with new attitudesthat could not be clearlydiscerned in 1930. Five yearslater,in a workthat has received less attention than it deserves,Allen drew a fullerportraitof the financialworld and its leaders in The Lords of Creation.By then he had experienced not only the full depths of the depressionbut also the congressionalinquiryinto the stockmarketthattransformedmajorbankersandbusinessmen fromculturalheroes into the villainsof a nationalmoralityplay.'9 Besides fashioninga compellinggroup portraitof the financialtitans of the 1920s, Allen depictedwhat amountedto a chain reactionin the spreadof New Era gospel:As securitiestradingbecame "the most powerful engine of American economic expansion,"the enthusiasm generatedby risingprices drove financiersand industrialistsinto "vast and perilousschemes for the developmentand controlof industryand trade."The "theoriesof Americanprosperity. . . forced in this hothouse"permeatedthe thinkingof people acrossthe nation. Allen dismissed the surgingbull marketas "agamblepure and simple"and the rationaleoffered by "the apostles of the new era" as fantastic. Nor could anyone exert control or stabilizinginfluence over its excesses. The abilityof the House of Morganand other great bankinginstitutions to preserveorderwas a mythdecisivelyshatteredby the crash.20 Like Allen's,Galbraith'sworkcan be read as a genial moralityplay, albeit one with even more bite. He sharedAllen'sview that the "striking thing about the stock marketspeculationof 1929 was not the massivenessof the participation.Ratherit was the way it became centralto the culture."However,Galbraith,with the benefit of hindsight,probed more deeply into cause and consequence. He disputed the prevailing conventionalwisdomthatby the autumnof 1929 the economywas well into a depression,that the market'sfall reflected a change "whichwas alreadyapparentin the industrialsituation,"and that it revealed "an image of the underlyingor fundamental economic situation."Noting that the economic decline was modest until Septemberor October,he concluded that "the crash did not come . . . because the marketsuddenly became awarethat a seriousdepressionwas in the offing."21 19See "Stock Exchange Practices,"Report of the Committee on Banking and Currency, 73rd Cong., 2nd Sess., No. 1455 (Washington,1934). 20 Allen, The Lords of Creation, 347-9, 361-3. 21 Galbraith,Great Crash, 83, 93-5. Maury Klein / 332 For Galbraith, the singular feature of the crash was that "the worst continued to worsen."22Unlike past disasters, this one did not absorb the shock and move on to better days. Investors caught in the crash and unable to meet margin calls were wiped out, but so were those who ventured back amid the debris in search of bargains. Even much of the smart money that cashed in before the crash could not resist coming back at some point during the ensuing year. All suffered alike as the Great Crash turned into the Great Slide-a market that spiraled relentlessly downward until it finally touched bottom on July 8, 1932, when the Dow Jones average hit 41.22 and the New YorkTimes combined average, 34.43. At its peak on September 3, 1929, the former had stood at 381.17, while the latter had reached a high of 306.79 on September 19. Galbraith believed that the crash could be much more readily explained than the depression that followed because its causes "were all in the speculative orgy that preceded it." Admitting that no one knew "why a great speculative orgy occurred in 1928 and 1929," he dismissed as nonsense the simplistic notion that easy credit impelled people to buy stocks on margin. "Far more important than rate of interest and the supply of credit," he emphasized, "is the mood." Amid the prosperity of the New Era, the market "took leave of reality." In effect, the crash amounted to a painful return to reality.23 After Galbraith'sbook, no serious study of the crash appeared until the 1960s. Milton Friedman and Anna Schwartz included a substantial account of the event in their broader monetary history published in 1963 but said little about the causes of the crash.24The first work devoted entirely to the subject came two years later with Robert T. Patterson's The Great Boom and Panic: 1921-1929. Although an economist by trade, Patterson wrote a traditional historical account that sought to explain what happened. "The causes of the panic, and of the depression that it heralded," he concluded, "were complex and deeply rooted. They were spread out over the world." Most of them, however, "were associated with the dominant one, namely, inflation; that is, an unwarranted increase in currency and bank credit."25 22Ibid.,113. 2 Ibid., xx, 173-7. "Earlyin 1928," Galbraithwrote, "the nature of the boom changed. The mass escape into make-believe, so much a part of the true speculative orgy, started in earnest."Ibid., 16. 2Friedman and Schwartz, Monetary History, 299-419. Arthur M. Schlesinger Jr. provided a brief account in the first volume of his Roosevelt trilogy in 1957. Arthur M. Schlesinger Jr.,The Crisis of the Old Order (Boston, 1957), 155-7. 25Patterson,The Great Boom and Panic: 1921-1929, vii, 215. Although Patterson'swork contained footnotes and a bibliography,it was, like Galbraith's,clearly intended for a general audience. The Stock MarketCrash of 1929 / 333 Pattersonresurrectedan older theme that "the inflationaryextension of credit, not only for stock speculationbut for business, real estate, and consumer purchases, had led to an unwholesome, illiquid debt condition on an enormousscale."To this was added a cluster of internationalfinancialtroubles-war debts and reparations,the reconstructionof Europe, unbalancednationalbudgets, weak nationalcurrencies, trade restrictions-all aggravatedby a profoundsense of distrust among nations. Pattersonreasonedthat a "significanttightening of credit at any point in the course of the stock-marketboom might quicklyhave brought the boom to a halt."The early 1920s had witnessed a soundrecoverythat, after 1925, gave way to the notion that "a New Era of perpetualboom was at hand."The Federal ReserveBoard exacerbatedthe problemby looseningcredit at the very times when it should have been tightened. PresidentCalvinCoolidge approvedthe expansionand did nothingto halt it, while Hoover found it disturbing but neverpubliclyexpressedhis displeasureand did little to slow its acceleratingpace.26 The resultwas a grandillusionof the New Era:that the relatively new Federal ReserveSystemcould use its instrumentsof currencyand credit control to prevent extremes of boom and bust from occurring, thereby ending the tyrannyof the business cycle with its recurring rhythmsof contractionand expansion.This "widespreadbelief in the immunityof the economy from adversedevelopments"became something of a faith. Hoover later cited some of its mantras:"Weshallhave no more financialpanics.... Panicsin the future are unthinkable.... Never againcan panic come to the Americanpeople."Pattersonconsidered this illusion,alongwith "money-creditinflation,"to be the primarycauses of the boom as well as the "correctivepanic and depression that followed."27 In his emphasison creditinflation,Pattersonechoed the argument advancedby Willis in 1930 and repeated by Hoover in his memoirs. The formerpresidentlambastedthe Federal ReserveBoardfor having persistentlyinflated credit since 1925 despite warningsfrom himself and others, with consequencesthat were "disastrousto our economy." In his reconstructionof the past, Hoover cast himself as the little Dutch boy strugglingvaliantlyto plug the dikes of runawaycredit inflationand excessivespeculationto no avail.Bemoaningthe "exhibition of waste, fraud,and greed which flowed from this artificialcredit 26 Ibid., 215-23. 27Ibid., 224-6. Maury Klein / 334 inflation,"Hoover observed sourly,"Thereare crimes far worse than murderfor which men should be reviled and punished."He also denounced the bankingsystem as "the weakest link in our whole economic system."28 After Patterson's1965 book, twenty years passed before another full-scalescholarlystudyof the crashappeared.During that time, several workstouched on the crashas part of broaderstudies. Robert Sobel, whose enormousoutputhoveredconsistentlybetween the popular and the scholarly,visited the subjectin severalbooks-most notablyin The GreatBull Market(1968).29In these works,he soughtto dispel the cluster of myths surroundingthe crash and its aftermath-most of them perpetuatedby Galbraith'sbook. Galbraithhad observed,"Asa year, 1929 has alwaysbeen peculiarlythe propertyof the economists." In Sobel'sview, the economistshad provided"excellentanalysesof the reasonsfor the Great Crash"but paid too little attentionto the "psychological and social factors involved in this event." Nor had they shown any convincingevidence of the ties between the crash and the ensuingdepression.30 Like Fisher,Sobel challengedthe conventionalwisdomthat stocks had been greatlyoverpricedin 1929 by an orgyof speculation.He saw the bull marketof the 1920s as "notonly natural,but overdue,"and the rise in stock prices as dramaticbut not unreasonable.The crash resulted not froma runawaymarketbut from"weaknesseson WallStreet and in Washington,and the creation of an unhealthynexus between business and speculation, especially in brokers'loans."These weaknesses in turn stemmed from the inability of financialand political leaders to "come to grips with the nation'sproblems and possibilities after the war.This led to abuses, mistakes,and excesses."Sobel'sview was supportedin a brief 1975 articleby GeraldSirkin,who found stock price levels to be more reasonableand rationalthan depicted by Galbraithand others.CharlesP. Kindlebergeragreed,notingthat the peak price of the Dow Jones industrialaveragein 1929 was "notout of line, afterallowancefor the changein the value of money,with the same in28Herbert Hoover, The Memoirs of Herbert Hoover-The Great Depression, 1929-1941 (New York,1941), 5-28. 29Robert Sobel, The Great Bull Market:Wall Street in the 1920s (New York, 1968). See also his Panic on Wall Street:A History of America'sFinancial Disasters (New York, 1968), 350-91, and The Big Board (New York,1965), 262-92. Sobel's works usually contain a minimal scholarlyapparatusof notes and bibliography. 30 Galbraith,Great Crash, 2; Sobel, Panic on Wall Street, 351. Sobel did not name any of the economists he had in mind. The Stock MarketCrash of 1929 / 335 dex in the 1,1001,400rangein 1983-84 and not much ahead of 750 in 1970."31 The crashwent largelyunexploredby popularwriters,until its fiftieth anniversaryin 1979 prompted the appearanceof Tom Schachtman'sThe Day America Crashed and The Day the Bubble Burst by GordonThomasand Max Morgan-Witts.32 Both providedsocial histories of the event, with the latterbeing far more ambitiousand informative. Althoughthe two worksprovidedmuch interestingdetail, neither attempted to analyze or explainthe key issues underlyingevents. In 1989 historianWilliam Klingamanpublished 1929: The Year of the GreatCrash,whichfollowedhis familiarformulaof examiningthe social historyof an erathroughthe lens of its pivotalyear.Togetherthese works did much to flesh out the socialcontextof the crashbut offered little in the way of insightinto, or new approachesto, the basic questions.33 The appearancein 1985 of BarrieA. Wigmore'sThe Crashand Its Aftermath marked a departure from past studies. Unlike previous studies,Wigmoremerely outlinedthe storyof the crashand compiled a wealthof new datato analyzeits financialcomponentsin far more detail than any previouswork.Observingthat "[f]orthose who anticipate or fear another financialbreakdown,there is no other period from which to learn,"he compiled a databaseof 142 companiescomprising 77 percent of the marketvalue of all stockson the New YorkStockExchange. For each year from 1929 to 1933 he analyzedthe performance of stocksby industrialsector and the bond marketas well. He also included a chapter summarizingthe relevant political and economic influenceson securitiesmarkets.The resultwas a comprehensiveportrait not only of the crash and its aftermathbut of their financialscaf31 Sobel, Great Bull Market,9-12; Gerald Sirkin,"The Stock Marketof 1929 Revisited:A Note," Business History Review (Summer 1975), 223-31; Charles P. Kindleberger, The World in Depression, 1929-1939 (Berkeley, Calif., 1986), 96. This is a revised and enlarged version of Kindleberger's1973 book. 32TomSchachtman, The Day America Crashed (New York, 1979); Gordon Thomas and Max Morgan-Witts,The Day the Bubble Burst (New York, 1979). Schachtman'swork has some skimpydocumentation and a brief note on the sources. Thomas and Morgan-Wittshave fuller source listings but utilize what may be the most frustratingsystem of documentation ever devised: a general list of sources used for each chapter that makes it all but impossible to trace a given quotation or event to its proper source. The crash also appeared in novels and plays-William Inge's "Splendor in the Grass" being one example-but a compilation of these examples would take the paper too far afield. 33WilliamKlingaman,1929: The Yearof the Great Crash (New York,1989). Schachtman was a filmmaker,Thomas and Morgan-Wittsjournalistswho specialized in books about disasters. Klingamanhad earlier published books dealing with 1919 and 1941. His work provides fuller notes and a more detailed bibliographythan the earlier works but is clearly intended for a popular audience. Maury Klein / 336 foldingas well. No other scholarhas dug so deeply into the dataor provided so full a picture of the actualperformanceof financialmarkets duringthese years.34 Wigmoreburrowedinto the technicalissues surroundingthe crash and seldom rose abovethem. His lean narrativeoffered no summaryof possible causes beyond an analysiswith the revealingtitle, "Technical FactorsBehind the Crash."The data revealedto him that "[s]mallinvestorsand sophisticatedfinancialprofessionalswere both caughtup in the speculativemania,"and that "itwas evident to sober people whose minds had not been formed by the desire for quick profitsthat stock prices were too high."While emphasizingthe market'sown excesses, Wigmore conceded that the crash did not take place in a void. He listed as contributingfactorstightened credit by the Federal Reserve and risinginterest rates, the closing of many small countrybanks,declines in such key economic sectors as construction,automobiles,and farm commodities, as well the internationalinfluences wrought by postwarrestructuringdifficulties."These problems had been around for years,however,"he concluded, "andcould account for neither the heights nor the depths that stockprices reached."35 In 1991 a slender volume by Harold Bierman Jr. examined the "greatmyths"of the crash and the lessons to be learned from them. Bierman sought to refute seven myths about the crash, among them the notion that stocks were "obviouslyoverpriced."Analyzingseveral types of data, he found prices and price/earningsratios to be reasonable. A comparisonof 1929with the 1987 crashconfirmedfor Bierman that no one could say why stock prices dropped drasticallyin either case. "Thefact that we cannot predict stock price turnswith any reliability,"he noted, "is an extremelyimportantlesson." So too was an awarenessthat "[t]hebalancebetween stockmarketoptimismand pessimismis very delicate."Biermanreturnedto the subjectin 1998 with a second volume that addedlittle to the firstin depth of studyor clarity of argument.36 34 BarrieA. Wigmore, The Crash and Its Aftermath:A History of Securities Marketsin the United States, 1929-1933 (Westport, Conn., 1985), xv-xvi. Wigmore noted that most books had "succumbed to the drama of the event and have concentrated on hyperbole, extreme market changes, and personalities." 3 Ibid., 26-31, 529-30. The low return on equity by most of the highest-priced stocks, Wigmore argued, reflected the "incongruitybetween stock prices and business reality." 36 Harold BiermanJr.,The Great Myths of 1929 and the Lessons to be Learned (Westport, Conn., 1991), 5-68, 174-5, 186, and The Causes of the 1929 Stock Market Crash:A Speculative Orgy or a New Era? (Westport, Conn., 1998), passim. Both books feature a rather bizarre approach and organization,using snippets of informationthat contain some serious errors of contextual omission as well as a failure to engage previous work on the subject except in a highly selective manner. TheStockMarketCrashof 1929 / 337 Aside from Bierman'swork, no full-lengthstudy of the crash has appearedsince Wigmore's,althoughthe subjecthas been addressedin several articles as well as in chapters of broader works. Eugene N. White, in a volumepointedlysubtitled"TheLessonsfrom History,"describedthe crashas "oneof the premierexamplesof an asset bubble." He noted that the "dominantexplanationof the boom"given by Galbraithand most laterwritersfocused on the inevitabilityof the collapse ratherthan its causes, and providedlittle insight into "howmuch fundamentalscontributedto the bull marketand the true extent of the 'speculativemania."'White argued that stock price movementswere "drivenby a speculativebubble where fundamentalsplayed, at most, an initiatingrole. Ratherthan let the boom run out of steam, the Federal Reserveattemptedto slow its advance.However,tightermonetary policy did not directlyhalt risingprices;instead it helped to push the economyinto a recession."37 White agreedwith those writerswho portrayedthe 1920s as "aremarkableperiod of prosperityand growth."During 1922-29, the gross nationalproductgrew at an annualrate of 4.7 percent and unemployment averaged3.7 percent;in 1929 itself, growthhit 6.8 percent and unemploymentfell to 3.2 percent. At the same time, the "structureof Americanindustryand commerceexperienceda profoundtransformation."Until mid-decade,White stressed,"thebullishstock marketonly reflected the general economic prosperity brought about by these changes." Reviewing the arguments of Fisher, Sirkin, and Charles Amos Dice, White found one importantchangethat coincidedwith the rampingup of the bull marketin March1928:"From1922 to 1927 dividends and prices moved together.In early 1928, prices rose and then soaredabove dividends."38 This shift in fundamentalsmighthave initiatedthe boom, but what sustainedit?Whiterejectedthe traditionalblameassignedto easycredit, arguing that "brokers'loans did not contribute to the stock-market boom." He emphasized the "independent character of the stock37 Eugene N. White, "When the Ticker Ran Late: The Stock Market Boom and Crash of 1929,"in Eugene N. White, ed., Crashes and Panics: The Lessonsfrom History (Homewood, Ill., 1990), 143-5. On the debate over whether or not there was a bubble, see also J. Bradford DeLong and Andrei Schleifer, "The Stock Market Bubble of 1929: Evidence from Closedend Mutual Funds,"Journal of Economic History (Sept. 1991), 675-700; Peter Rappoport and Eugene N. White, "WasThere a Bubble in the 1929 Stock Market?"Journal of Economic and History (Sept. 1993), 549-74; Eugene N. White, "The Stock Market Boom and Crash of 1929 Revisited,"Journal of Economic Perspectives(Spring 1990), 67-83. 38White,"Whenthe Ticker Ran Late,"146-58. Dice had in August 1929 published a book insisting that the "new levels of prices in the stock marketwere the product of economic fundamentals."Charles Amos Dice, New Levels in the Stock Market (New York,1929). Maury Klein / 338 marketbubble, whose demandfor funds and new issues forced major changes in other financialmarkets."Yet, White admitted,"the econometricidentificationof a bubble is elusive.... While it is currentlyimpossible to identifyor measurea bubble with any statisticalprecision, the absence of any alternativeexplanationfor the events of 1928-29 and certain qualitativeevidence clearly point to the emergence of a bubble."39 What,then, causedthe crash?White rejectedcontemporaryexplanationsas inadequate.Noting that fundamentalsseemed strong,he advanced a more subtle reason. When the marketbegan to decline in September,no good news materializedto revitalizeit as had occurred duringpast dips. Sprinklingsof bad news dampenedenthusiasm,as did tight credit, rising interest rates, and doubts that productionwould continue to grow."No indicatorof the economy showed any sharpdeparture,"White noted, "butthe timingof some signsof a slowingeconomy with declining stock prices proved enough to revise some stockholders' expectations."This accretionof unfavorablereports led to a "downwarddrift"of the marketthat snowballedinto a crashand punctured the speculative bubble. But White conceded that "even sixty years later,it is difficult,if not impossible,to identify any measureor variablethat capturesthe degree of speculationin the market."40 RobertShillertoo pointed to the presence of a speculativebubble. Borrowinga phrase from Alan Greenspan,he sought to explain the currentbull marketin terms of its "irrationalexuberance."But his look at the crashof 1929 scarcelyscratchedthe surface.In surveyingthe impact of mediaon investors,Shilleroffered an astoundinglynaive sketch of newspaperaccountsfor Monday,October29, 1929. After a cursory glance at the news of three other days,he concluded:"Thereis no way that the events of the stock-marketcrashof 1929 can be considereda responseto any real news stories."Nowhere did he examinethe news of these daysin the contextof events, stories,rumors,and other informationaccruedduringthe previousweeks and months.Indeed, he did not indicatethat such a contexteven existed,let alone analyzeor evaluate its influence.41 White, "Whenthe Ticker Ran Late," 158-70. Ibid., 170-80. The contemporaryexplanationsinclude the issuing of large quantities of new stock, the Boston Edison decision, apprehension over the pending Smoot-Hawley tariff bill, the Hatry failure, and the credit situation. In a later article, White suggested that the tariff may have been something of a factor. See Rappoport and White, "WasThere a Bubble," 570. 41Robert J. Shiller, Irrational Exuberance (Princeton, N.J., 2000), xii, 3, 7, 82-8. Greenspan used the memorable phrase in a speech given on December 5, 1996. 39 40 The Stock MarketCrash of 1929 / 339 Whateverthe value of Shiller'sbook for understandingthe modern market,it providedno insightsinto the experienceof 1929-thanks in Its largepartto its utterlackof solid or accuratehistoricalscaffolding.42 in virtuelay a renewed emphasison the importanceof both psychological and structuralfactorsas influenceson the marketand on the culture itself. If there is a common threadrunningthroughthese works,it is an emphasisof varyingdegrees on the irrationalelement in investors'behaviorand the growingsense of illusionor euphoriathat infused their view of the market.Virtuallyevery authormakesthis point either as a centralor an ancillarytheme. But this concernover the role of illusion was hardlynew. Severalearlywritersbesides Allen and Fisherrecorded its influenceanddamagingconsequences.VirgilJordanwrotein January 1930,"Probablyno nationin modem times has sufferedso frequentlyor so greatlyas the United States from recurrentperiods of exaggerated optimismand unrealisticinterpretationof its economicsituation."43 Jordanviewed the promiseof the New Era that "anew and miraculous means of permanentand unlimitedprosperityhad been discovered, that all... problemsof progresshad been solved,that all old laws of economic developmenthad been superseded"as a cruel delusion, yet a powerful if not irresistibleone. "The New Era was a state of mind,"he noted, "a mode of thought,an image, a symbolof great poThe disillusionmentand tency,all the strongerbecause it was unreal."44 that followed the crash thus amountedto a repuuncertainty inevitably diationnot only of the bull marketbut of this mind-setgroundedin illusion.A vacuumof belief alongwith uncertaintyover futureprospects arose,which stronglyinflected attitudesduringthe crucialmonthsfollowingthe crash. 42Twoexamples (ibid., 222-4) suffice to indicate the depth and quality of historical material in the book. At one point Shiller, describes the famous bankers'pool during the crisis as being set up by J. P. Morgan and John D. Rockefeller.Jack Morgan was abroad at the time, and Rockefeller had nothing to do with the pool, which was organized by Thomas Lamont of the House of Morgan. See Ron Chernow, The House of Morgan (New York, 1990), 315-16. Shiller also states that the Fed raised the rediscount rate from 5 percent to 6 percent on February14, 1929. In fact, the rate was not raised. The New YorkFederal Reserve Bank voted to raise the rate but was overruled by the Federal Reserve Board in Washington,which also vetoed nine more attempts. The increase to 6 percent was not approved until August 9, 1929. See Friedman and Schwartz,MonetaryHistory, 258-64. 43VirgilJordan,"The Era of Mad Illusions,"North American Review, 229 (Jan. 1930), 55. Shiller, in a 1984 article, pointed to the influence of extraneous fads and fashions on stock prices and to social psychology as a useful tool in explainingprice movements. See Robert J. Shiller, "Stock Prices and Social Dynamics," Brookings Papers on Economic Activity, 2 (1984), 457-510. 44Jordan,"The Era of Mad Illusions,"55. Maury Klein / 340 Links between the Crash and the Depression Inquiriesinto the relationbetween the crash and the depression have produced no more agreementthan those into the causes of the crashitself. Historiansand economistsalike have shown more interest in the relatedquestionof why the depressionwas so prolongedthan in its connectionto the crashthat preceded it. This question,a large and importantone, takes our discussiontoo far afield to be consideredexThe inquiryhere is confinedto possiblelinksbetween cept in passing.45 the crashand the depression. Monthsbefore clear signalsof a possible depressionhad appeared, IrvingFisher issued two remarkablyprescientwarnings.Disturbedby the imbalancein gold holdings and a general shortageof gold to support the currenciesbackedby it, Fisher emphaticallystated:"Thereis now a threat of deflationwhich cannotbe overlooked!"He issued this alert publicly as early as January1930, concerned that the world decline in commodityprices might signalthe "beginningof a great secular downwardmovement in prices spelling depression similarto the movementsfollowingthe Napoleonicwars and the Civil War."His argument got little attentionat a time when inflationremainedthe larger fear, and one that persisted throughthe darkestyears of the depression. Fisher also stressed anotherelement that became a common ingredientin explanationsof the crashand the depressionthat followed. "The chief danger,"he declared,". . . was the dangerof fear, panicky fear, which might be communicatedfrom the stock market to business." Three years before FranklinD. Roosevelt uttered his famous phrase,Fisher insistedthat the wordsof any courageousman must be, "Myonly fear is the fear of fear."46 AlexanderNoyes too recognizedthat the crashtriggereda remarkable reversalof mood. "Even in professionalWall Street,"he noted, "whichhad in 1929 adopted the idea of a New Era in which nothing could stop the speculativeboom, an equallyemotionalbut exactlyop45"In American economic history,"noted Michael A. Bernstein, "there is no greater puzzle than the persistent failure of investment activity during the depression of the 1930s to generate a full recovery."The Great Depression: Delayed Recoveryand Economic Change in America, 1929-1939 (New York,1987), 1. The firsttwenty pages of this work provide a useful summaryof three alternativeapproachesto solving this mystery. 46 Fisher, Stock Market Crash-And After, 63, 192, 269; New YorkTimes, April 23, 1945; Fisher, My Father Irving Fisher, 264; American National Biography, 8:14-15; Time, Jan. 20, 1930, 38; BarryEichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (New York, 1992), 24. "There is no little irony,"wrote Eichengreen, "in the fact that inflation was the dominant fear in the depths of the Great Depression, when deflation was the real and present danger." The Stock MarketCrash of 1929 / 341 posite view of thingsprevailed... thatwe had entered a differentNew Era in which nothing could stop the fall of prices or the trade depression."Afterthe crash,Noyes undertookthe very differenttaskof warning "thissame public now againstthe prevalenthallucinationof prices fallingwithout limit and financialadversitythat was sure to go on forever."To his experiencedeyes, the younger element on Wall Street, which had never knowna marketcollapse, seemed unable to comprehend what had occurred.47 AlthoughAllen also wrote before the full force of depressionhad struck,he sharedthis sense thatthe crashhad triggeredanotherseismic shift in Americanmood as well as society.His view of the crashand its effect can be seen in these closingwordsfromhis penultimatechapter: Prosperityis morethanan economiccondition;it is a stateof mind. The Big Bull Markethadbeen morethanthe climaxof a business cycle;it had been the climaxof a cycle in Americanmassthinking andmassemotion.... Withthe Big BullMarketgone andprosperity nowgoing,Americanswere soonto findthemselveslivingin an alteredworldwhich called for new adjustments,new ideas, new habitsof thought,anda new orderof values.48 But Allen did more than paint a prescientpicture of the sequel to the crash. Writerswho treat his views condescendinglyoverlook the fact that Allen also tried to explainthe descent into depressionby listing the "economicdiseases from which business was suffering."They included overproductionof capital and goods; artificialcommodity prices; collapse of the price of silver "witha resultingparalysisto the purchasingpower of the Orient";derangementof internationalfinance caused by the flow of gold in huge quantitiesto the United States and effect of the deFrance;unrestin foreigncountries;the "self-generating and "the pression itself"; profound psychologicalreaction from the exuberanceof 1929."Allen praised Hoover for his attempt to restore "economichealthby applyingthe formulaof Doctor Coue."The effort was doomed, however,"forthe economic disease was ... organicand deep-seated."49 Galbraithtook a structuralview, arguing that "[n]o inevitable rhythmrequiredthe collapse and stagnationof 1930-40." The econ47Noyes, Market Place, 337, 351. Noyes recognized that no one had expected the sequel: "The crushing severity of the business reaction which ensued ... was not predicted, even in October 1929; it created a sense of bewilderment, almost credulity." 48Allen, Only Yesterday,281. 49Ibid., 283-5. Maury Klein / 342 omy was not seriouslystrained;nor had productionoutrun consumption, as was often suggested. Althoughthe economy that summer of 1929 entered "the familiarinventoryrecession,"clear evidence of a downturndid not emerge until October.Why,then, did it continue its drearydecline for an entire decade? Galbraithlisted five weaknesses that did much to make the economy "fundamentallyunsound":maldistributionof income;bad corporatestructure;bad bankingstructure; the dubious state of the foreign balance; and the poor state of economic intelligence. "Had the economy been fundamentallysound in 1929,"he concluded,"theeffect of the great stock-marketcrashmight have been small .... But business in 1929 was not sound;on the contraryit was exceedinglyfragile."50 Governmentpolicy made a bad situationworse. Galbraithheaped scorn on the Federal Reserve Board,chargingthat after the crisis of March1928 it "wasless interestedin checkingspeculationthan in detachingitself fromresponsibilityfor the speculationthatwas going on." He also assailedHoover'sfailureto use governmentalpower more vigorously,yet admitted,"Norwas it very certain,at the time, what could be done."He underscoredthe policy mythsthat bound the thinkingof Hoover and others, notablythe "straitjacket"of the balancedbudget and "the bogey of 'going off the gold standardand, most surprisingly, of riskinginflation."Despite amassingenormoussuppliesof gold, "the countrywas experiencingthe most violent deflationin the nation'shistory. Yet every sober advisersaw dangershere, including the danger of runawayprice increases."In Galbraith'sview, Hoover'srejectionof both fiscal and monetary action "amountedprecisely to a rejection of all affirmative government economic policy."51 Sobel too regardedthe crash as less importantthan the long slide of 1930-33, but so much more dramaticand attractiveas a symbolfor the subsequentdownwardplunge that it was "no longer studied as an historicalevent, but more as a symbolof greaterforces and new beginnings."At the time, however,few people believed that such a crashwas inevitableor that it would lead to a depression.Nor were its effects as disastrousas later portrayed."No causal relationship,"he said flatly, "betweenthe events of late October 1929 and the Great Depression has ever been shown throughthe use of empiricalevidence."Why did conditionsnot improveafterthe crash?Sobel blamedthe "politicalparalysisof November1929to April1930.... Had thosewho possessedthe Galbraith,Great Crash, 177-92. These pages contain explanationof the five factors. 145, 188-90. Wicker,Federal Reserve Monetary Policy, 136, called Galbraith's account "seriouslymisleading." 50 51 Ibid., 40, The Stock MarketCrash of 1929 / 343 power acted to shore up the economy, and those who controlledthe ExchangeanddominatedAmericafinancetriedto correctabuses,the situationin mid-1930mighthavebeen different."But both groupsrefused to act. Sobel saw the crash as bringing down not the economy but ratherthe grandillusionthat sustainedthe market.52 The fullnessand complexityof the dataassembledby Wigmoreled him to a predictableconclusion. "HerbertHoover would have liked this book,"he wrote. "He believed that the Depressionwas the result of a series of shocks-collapse of speculationin the stock market,collapse of internationaltradeand finance,collapseof the bankingsystem. I agree, except that the shockswere even more multifarious."The succession of negative influencescontinued relentlesslyinto the summer of 1932, when both the stock and bond marketstouched bottom, and culminatedin the bankingcrisis of 1933 that fostered what Wigmore called "anair of unreality."He added that it was "difficultto blame the Federal Reserve for its conduct of financialactivitiesor for the depth of the Depression."53 As Galbraithnoted, the field has belonged largely to economists who have soughtliterallyto take the measureof the crashand its aftermath in their searchfor underlyingcauses of the depression.Their efforts met with no more success than those of historians.As CharlesP. Kindlebergeradmitted,"It seems odd, fiftyyears after the event, that economists still do not understand,or at least cannot agree on, the worlddepressionof the 1930s."One school held it to be a financialcrisis rootedin monetarypolicy;anotherviewed it as one more episode in the recurringpattern of fortuitousbusiness cycles. A third approach found the sources of collapse in disparateeconomic factors, and a fourth in the derangementof internationalfinancialarrangements.A number of single causes also came in for a large share of the blame; but, as Kindlebergernoted, "For the most part, the debate has been conductedin terms of monetarismversusKeynesianism,moneyversus spending:two unicausesrangedagainstone another."54 Milton Friedmanarticulatedand championedthe monetaryargument in severalvenues, most notablyin his and AnnaSchwartz'sclassic 52Sobel, Great Bull Market, 9-10, 147, 150-2; Sobel, Panic on Wall Street, 390-1. As an example of how the public memory sometimes made wrong connections, Sobel issued this reminder to readers:"Contraryto popular belief today, the banks remained solvent during the crash; the wave of liquidations would not take place for another year."In another work, he called the first three months of 1930 "aperiod of lost opportunities." 53Wigmore,Crash and Its Aftermath, xvi, 529-51. In these latter pages, Wigmore itemizes the key factors that deepened the depression. 54Kindleberger,Worldin Depression, 1-5. The same debate dominates discussion in Karl Brunner,ed., The Great Depression Revisited (The Hague, 1981). Maury Klein / 344 study of American monetary history. Friedman regarded the contraction of 1929-33 as perhaps the most severe in American history and "a tragic testimonial to the importance of monetary forces." In his view, "the downward pressure on income produced by the effects of the stock market crash . . . was strongly reinforced by the behavior of the stock of money." Kindleberger described Friedman's explanation as "national, monetary, and related to a policy decision. It is unicausal. In my judgment it is wrong."55 Peter Temin agreed. In 1976 he countered the "monetary hypothesis" with a "spending hypothesis," and described some of their differences this way: "The Depression was precipitated by a fall in autonomous spending according to the spending hypothesis and by banking panics according to the money hypothesis." In the former, the stock of money fell because the demand for money declined; in the latter, the stock of money fell because the supply of money fell. Most economists who rejected the monetary hypothesis embraced some variant of what he called the spending hypothesis and developed econometric models to refine it. However, Temin concluded that "neither the approach adopted by Friedman and Schwartz nor the econometric approach is a good way to analyze this choice."56 Instead Temin looked at the unquantifiable issue of mood. The crash, he thought, "may have altered consumer expectations in a way that caused them to decrease consumption expenditures. In 1929, most people expected good times to continue. By 1933, most people expected bad times to continue. Sometime in the interim, people's vision of what the next few years would bring changed. The question, therefore, is not whether expectations changed ... but when. The importance of this question cannot be overestimated." It was also one that could not be captured or measured by any of the economist's usual tools.57 For Allen, the crash was "the dividing point between unbounded optimism and equally uncontainable pessimism," but Temin argued that awareness of this transformation came slowly. Contemporary evidence led him to conclude that sometime in the fall of 1930 "business55 Kindleberger,Worldin Depression, 4; Friedman and Schwartz,Monetary History, 300, 307. Kindleberger repeated this view in a later work. See Charles P. Kindleberger,Manias, Panics, and Crashes: A History of Financial Crises (New York, 2000), 10, 24. This is the fourth edition of a work originallypublished in 1978. 56Peter Temin, Did Monetary Forces Cause the Great Depression? (New York,1976), 713. Of Friedman and Schwartz'sargument, Temin says, "Theirnarrativeis long and complex, but it offers far less support for these assertions than appears at first. In fact, it assumes the conclusion and ... does not test it or prove it at all."Ibid., 15-16. For early examplesof the spending hypothesis, see ibid., 31-53. The Stock MarketCrash of 1929 / 345 men became convincedthat prosperitywas no longerjust aroundthe comer.... [B]usinessmen'sand probablyalso consumers'expectations built up during the 1920s about the normal state of business activity were not shatteredimmediatelyby the stock-marketcrash;they only dissolvedabouta year afterthe crash."58 From Temin'sanalysisemerged a narrativethat began with a recession in 1929 caused by "somecombinationof factorswhich cannot be disentangled,"but which involvedtight financialmarketsand various imbalancesin other markets,most notablyan "apparentoversupply of housing."The result was a fall in income that would not itself have sparked a major depression. But there followed a series of other deflationaryblows beginningwith the crash. AlthoughTemin did not regardit as even the largest deflationaryinfluence, the crash did reduce "wealthin the hands of consumers"and therefore consumption. It also curbedfinancialactivityby individualsand firms.59 The key transformationcame in 1930, when the deflationthat had shown signs of severityin 1929 grew worse instead of better. Temin concluded that, contraryto conventionalwisdom, there was "no evidence that the bankingpanic of 1930 had a deflationaryeffect on the economy."Insteadhe found the most importantproblemto be a nosedive in consumptionexpendituresduring 1930. The fall in investment was not nearlyas dramatic,and neitherit nor other obviousfactorslike the crash,the fall in income, and a poor harvestsufficedto explainthe collapsein consumption.60 The Europeancurrencycrisis of 1931 added anotherstrainto the deepening depression."Aworld-wideperspective,as opposed to a national one," stressed Temin, "is needed to analyze the events after 1931."By that year the storyhad grown"so complex and the interactions so numerous that it is no longer possible to envisage separate movementsin differentparts of the world."As for the role of macroeconomic policy at the time, "itis clear from the fact that the Depression occurredthat effective countermeasureswere not used." Temin concludedthat the interwarperiod could not be satisfactorilyanalyzed with quantitativetools in part because it lacked "aplethoraof data for the testing of macroeconomichypotheses."Theory had to presume 57Ibid., 74. 58Ibid., 75-9. 59Ibid., 170-2. Depressed agriculturalprices added another deflating element, though Temin doubted that they played a major role. 60 Ibid., 137, 172-3. According to Temin, the data suggested that demand for money fell more rapidlythan the supply during 1930 and most of 1931. Maury Klein / 346 staticconditionsover time, but the relativelyshortinterwarperiodwas extraordinarily dynamicand unique, markedby worldwarsat each end and a majordepressionin the middle.61 Kindleberger,surveyingthe onset of depressionfrom a globalperspective,viewed the crashas an episode in the developingdeflationary spiralthat was to stranglethe world economy."Inthe light of the sudden collapse of business, commodityprices, and importsat the end of 1929,"he concluded, "it is difficultto maintainthat the stock market was a superficialphenomenon,a signal,or a triggering,ratherthanpart of the deflationarymechanism."The significance of the crash to Kindlebergerlay in "startinga process that took on a dynamic of its own."This reaction"movedfrom the decline in stock marketsto production cuts and inventoryrunoffs in one sequence, and from stock prices to commodityprices to the reducedvalueof importsin another." The monetarist-Keynesiandebate,he added,saidlittle aboutthe instability of credit, the fragilityof the bankingsystem, or impacts on production and prices when the credit system became paralyzedthrough loans rendered bad by falling prices-factors, that in his view, did much to explainwhat occurredin the earlystages of the depression.62 Laterscholarsalso rejectedthe monetaryargument;some, notably Thomas Mayer, joined Kindleberger in challenging Temin's hypothesis as well. Wigmore concluded, "Monetary policy could do nothing to affect the disruptive shocks to the economic system of the Crash," adding that "when we seek to explain how monetary policy might have cured the Depression, no convincing paths occur." Barry Eichengreen found "no evidence that monetary policy played a significant role in the great bull market of the 1920s. It is more plausible to argue that the Wall Street boom influenced monetary policy rather than the other way around."63 On the broader questions of what brought on and prolonged the depression, Eichengreen was emphatic. In a detailed 1992 study, he argued that the root source was blind adherence to the gold standard, which, he said flatly, "was the principal threat to financial stability and economic prosperity between the wars." Like Kindleberger he empha61 Ibid.,173-8. 62Kindleberger, World in Depression, 114, 116; Kindleberger, Manias, Panics, and Crashes, 67. In the latter citation, Kindlebergeradded that "thisis an old view, held by many economists prior to 1940, that has unaccountablyslipped into disrepute during the Keynesian revolution and the monetaristcounterrevolution." 3Wigmore, Crash and Its Aftermath, 551; Eichengreen, Golden Fetters, 14; Thomas Mayer, "Consumption in the Great Depression," Journal of Political Economy, 86 (1978), 139-45, and "Money and the Great Depression: A Critique of ProfessorTemin'sThesis," Explorations in EntrepreneurialHistory, 15 (1978), 127-45. The Stock Market Crash of 1929 / 347 sized that it was "notpossibleto understandthe causesof the American slump so long as they continue to be considered in isolation from events in other parts of the world."The economic decline that struck Americain the fall of 1929 had alreadybeen evident abroadfor nearly a year. However,the crashitself and its sequel remaineda mysteryto Eichengreen. "The initial downturnin the United States enters this tale as somethingof a deus ex machina,"he admitted,". .. to explain the severityand persistenceof difficultiesin other partsof the world."64 In 1990, ChristinaD. Romer,ponderingthe "dichotomythat economists often impose between the Great Crashand the Great Depression,"professedto find a link between the crashand the "acceleration of the decline in realoutputin late 1929 and throughoutmuch of 1930. That link is that the stock-marketcrash caused consumersto become temporarilyuncertainaboutfutureincome."This "uncertaintyhypothesis" purportedto unravelthe majormysteryof 1930. With the market plummet of 1987 fresh in mind, Romer noted that the variability of stock prices in 1929 was much higher."The continued gyrationsof stockprices in 1930 made consumersvery nervous,"she argued,while the quick recoveryof the stock marketafter the 1987 crash allowed consumersto view it as a mere aberration.As a result, "the 1987 crash did not depressspendingto the extent that the 1929 crashdid."65 Romer'sconclusion that "uncertaintyis a potent determinantof consumerbehavior"was hardlyrevelatoryand did little to explainthe sources for that uncertaintyor its role in bringingon a prolongeddepression.If anything,her exercisein devisingan elaborateargumentto demonstrate the obvious reflected the frustrationof economists in seeking to explain what could not be explained through the use of econometrictools or models. Nor have historiansfaredmuch better in clarifyingthe reasons behind what David Kennedy called the economy's"mystifyingdownwardslide."As Kennedyobserved,the most recent experienceof Americanswith an economic downturnin 1921 allowed them to "justlyfeel in 1930 that they were not-yet-passing throughas severe a crisis as the one they had endured less than a decade earlier."66 64Eichengreen, Golden Fetters, 4, 14-15. He added, "Tosome extent this is inevitable, for there is no consensus about the causes of the downturn in the United States." 5 Christina D. Romer, "The Great Crash and the Onset of the Great Depression," Quarterly Journal of Economics, 105 (August 1990), 598-623. Reviewing a range of quantitative and qualitative evidence, Romer concluded that "stock price movements prolonged uncertainty in 1929 in a way that they did not in 1987. Whether this was the crucial difference between 1930 and 1988 is hard to say." 66Kennedy, Freedomfrom Fear, 59. Temin, Did Monetary Forces Cause the Great Depression?, 74, made this same point. Maury Klein / 348 As this brief survey suggests, scholars have produced no more consensus on the question of links between the crash and the onset of depression than on the causes of the crash itself. Although the divisions on this issue are sharper and more polarized, the closest thing to a leitmotif in the literature stressed such amorphous factors as mood, attitude, and psychology.67 One version revolves around what Michael Bernstein called the "business confidence" school, which held that the stock market'sslide "created intensely pessimistic expectations in the business community ... stifling investment and thereby a full recovery."Another version, emphasized by Temin and Romer among others, stressed the sudden decline in consumer confidence and spending. A third group, which included Fisher, Patterson, and Lionel Robbins, viewed the depression as "the inevitable consequence of the chaotic and unstable financial structure of the twenties."68Others, notably Galbraith, saw the problem rooted in the weaknesses of the economy itself or, like Sobel, blamed the segue into depression on failures of policy and institutional reform. Can It Happen Again? Historians are as reluctant as economists are eager to apply past lessons to the present. One obvious reason for this difference, as Kindleberger put it, is that "[h]istory is particular; economics is general."69 The crash of 1929 has frustrated the efforts of both camps in different ways. Rather than provide insights about the potential for future market crashes, it has served more as a sharp reminder to economists and historians alike of the limitations of their crafts. The most obvious conclusion that emerges from this review of the literature is that scholars are not likely to agree soon on what caused the crash or what role, if any, it played in bringing on the depression. Why has consensus been so difficult to reach? Economists have been thwarted in part because, as Temin and others have pointed out, relevant data are difficult, if not impossible, to obtain, and the period itself is unique, making meaningful comparisons with other eras untenable. What other period can be compared with this thirty-year span that embraces the two largest and bloodiest wars in human history, an unprecedented decade of prosperity, and the 67 Ibid., 623. 68 Bernstein, Great Depression, 4-5. 69 Kindleberger,Manias, Panics, and Crashes, 13. TheStockMarketCrashof 1929 / 349 longest and deepest depressionendured by Americans?Econometric models, however ingenious, are not likely to provide more insight. A static model cannot explain a dynamicprocess containingmore variables than can be calculatedor computed. Nor can it get at the most crucialvariableof all: the human element with its complex of motives behind the behavior.What model could incorporatesuch factors as mood, attitude,and illusion,which most scholarshave put at the center of their analysis? To cite but one example of the difficultiesinvolved, controversy rages over the precise natureof people's mood after the crash and its effect on subsequentevents. Manysources,as well as my own close examinationof the period from November 1929 to June 1930, confirm the presence of persistent assertionsfrom virtuallyall quartersthat business conditions would soon improve, and the market recovered sufficientlyto encouragebelief that the worst had passed.70Not until spring,when the economic indicatorsfailed to show the expected improvementand the marketcollapsedagain,did this chorusof optimism begin to breakup. But did the chorusreflect real optimism?Did it reveal true feelings or was it a facade that amountedto whistlingin the dark?How is one to know? Several explanationshave been offered for the waves of selling priorto the crash.All are plausible,even likely,yet we have no way of knowingthe extent to which any one of them holds true for any given investor.In the case of the crash,this problem is compoundedby the fact thatwe don'treallyknowhow widespreadparticipationin the market actuallywas, nor do we know the numberof investors,the amount of moneythey had invested,or which sectorsthey had investedin. Nor can we divine the effect of the crash on the much larger number of people who had never been in the market. The problem for historiansand economists alike is that decisions largeand smallare made in the contextof influencesthat cannotbe reliably pinpointed for individualsor gathered en masse. In this sense, the most satisfactory,if frustrating,explanationin the literature remainsthat of Temin,who more than any other student of these events stresseswhatwe don'tknowand can'tsolve aboutthe mystery.Seventy yearsof scholarshiphaveproducednumerousexplanationsand insights but have not advancedour understandingmuch beyondthe contemporarylament ofW. W. Kiplinger:"Theamazinglesson from this depres70 My own findings can be found in Rainbow'sEnd: The Crash of 1929, forthcoming from Oxford UniversityPress. Maury Klein / 350 sion is that no one knows much about the real causes and effects of ANYTHING."71 Ours is an age that delights in measuringand quantifying-and thereby abstracting-everything. The crash and its aftermath have been poked and prodded, quantified and theorized to death with meager advance of insight. This failure suggests that the true explanation may lie in areas that cannot be measured or quantified or clearly grasped because of the complexity of their interaction. This is often the case in the messy arena of human affairs, but the modern age, with its growing arsenal of sophisticated tools and techniques, is ever more reluctant to admit what it does not know or understand-and even more, what it cannot expect to know or understand. The crash and the depression, like certain other intractable historical problems, have been conspicuous in puncturing this hubris of modern scholarship. Put another way, the story of the crash and the descent into depression makes more sense when it is acknowledged that not all aspects of the tale can be known with certainty. In the search for explanations, issues of mood, illusion, and confidence (both investor and consumer) will surely rank high on any serious list. In these areas, at least, can be found strong threads of connection between past and present experience. Then and now the fragility of mood on Wall Street and in the larger economy is a phenomenon much observed if little understood. Here again, however, to recognize the importance of these factors is not to understand the precise nature of their influence or the effects of their presence. Many observers recognized their critical role at the time. Eight months before the crash, in February 1929, one Wall Street Journal columnist made a shrewd appraisal of the role of mood in terms that might have been plucked from a recent issue of the paper: The market as well as business is more or less a state of mind. The people have been in an optimistic state of mind for severalyears.... That has been the basis for the longest period of prosperity in history and the longest bull market in history. If the people begin to lose confidence prosperity will ebb with it and so will increased earnings ... production .. . dividends ... high wages and a healthy market. Sentiment is something dangerous to trifle with.72 Remarkably similar statements can be found in numerous sources seeking to explain the recent fall of the bull market. 'What's driven this 71 Quoted in David Burner,Herbert Hoover:A Public Life (New York,1979), 248. Journal, February 12, 1929. 72Wall Street The Stock MarketCrash of 1929 / 351 economicboom hasbeen confidencein the boom itself,"wroteRobertJ. Samuelsonin December 2000. "Peoplehave acted as if it could go on forever,and they have spent accordingly.But we are now seeing the first signs of frayingconfidence. ... If confidence unravels,the mild economicslowdownthat'snow unfoldingcould deterioratequicklyinto a nastyslump."Three weeks laterAllanSloannoted: Until Marchthis was a Tinker Bell market. So many investors clappedtheirhandsandbelievedin stocksso intenselythatlots of sky-highissueskepton flyingeven thoughmanypeople,me among them, consideredtheirvaluationinsane.The downsideof stocks' tradingon the basisof belief ratherthanon assetsor profitsis that whenthe belief shatters,Tinkhasa longwayto fall.73 There is one interpretationthat makessense of the crashand its aftermath,but it may be too simple to satisfyeither historiansor economists. It amountsto a refinedversionof the old saw that historyis just one damn thing after another.The crash and the depression can be viewed as aberrations,and their relationthe productof an unlikelyand unpredictablesequence of events-the randomcoming together of a confluence of unfortunateforces. The accumulatingeffect of these forces not only createdthe crisisbut prolongedand deepened it, much like the strengtheningof a routinestorminto a killerhurricaneor blizzardwhen a varietyof unfavorablefactors,each one unpleasantbut not lethal in itself, combine on rare occasionsto forge the worst-casescenario.In short,the crashand its aftermathwas the perfect storm. In this interpretation,the crashand the depressionare viewed as a rashof reallybad luck compoundedby an unrelentingparadeof other negative factorsthat collided with each other in the most unlikelyof ways. Seen in this light, the answerto the questionof whether it could happen again is obvious:of course it could, if the right combination of circumstancescame together. The problem, as always,is knowing, in the context of a given time and place, what circumstancesand influences would be requiredto produce the elements that would come together in so improbable a disaster.Although one might offer the consoling premise that no one or two factorsby themselves are likely to produce a killer storm, it is also probablethat any such confluence of factors will be impossible to identify much before its arrival.We have yet to grasp the mechanics of market storms as well as those of nature. 73Newsweek, December 18, 2000, 52, and January8, 2001, 36.  1920's had been a period of good economic times  Tues. Oct. 29th, 1929 - NYC Stock market crashed, causing a depression that would last until 1942     The stock market: the public invests in cos. by purchasing stocks; in return for this they expect a profit b/c of booming 1920's economy, $ were plentiful, so banks were quick to make loans to investors also investors only had to pay for 10% of the stock's actual value at time of purchase › this was known as BUYING ON MARGIN, and the balance was paid at a later date      this encouraged STOCK SPECULATION - people would buy and sell stocks quickly to make a quick buck b/c of all this buying & selling, stock value increased (Ex: G.E stock $130 → $396/share) this quick turnover didn't aid cos. → they needed long term investments so they could pay bills (stock value was like an illusion) unscrupulous traders would buy and sell shares intentionally to inflate a given co.'s stock value all of this gave a false sense of security/confidence in the American market beginning in Oct. 1929, investors’ confidence dropped, leading to a market collapse  all tried to sell at once and bottom fell out of market = panic selling… (many bankruptcies as banks called in loans)  only a tiny minority of people traded on the stock exchange, but they possessed vast wealth, and the crash had a ripple effect on the economy       For the poor....... mass consumption was already low (poor could afford to buy little) Unemployment unemployment rose → no gov't assistance at first since people could not buy, productivity was cut back = further unemp. Purchasing Power Productivity so w/ additional unemployment → purchasing power declined again → reduced productivity yet again (= ECONOMIC CYCLE) in 1920's U.S. Eco. was based on the productivity – purchasing power - employment cycle  for many goods to be produced , purchasing demand had to be there: this resulted in high employment and a healthy economy  b/n 1924-27, U.S. productive capacity doubled but it was b/c of technological innovation → electricity and mechanical advances made for better production, but no new jobs were added to the economy  so more consumer goods were available, but there weren't nec. more people to buy them (OVERPRODUCTION)        a 2nd major problem: uneven dist. of wealth 0.1% at top owned as much as bottom 42% of American families (42% below poverty line) of the 58% above the poverty line, most fell into the middle class category they were not wealthy; they had jobs b/c of the industrialization & consumerization of the American market place this middle class depended on their salaries and when productivity declined they lost their jobs and b/c of low savings, they had to cut back on their purchases this decline in consumption among the middle class ruined the whole country       Pres. Hoover’s responses… he didn't believe that the gov't should play an active role in the economy he persuaded bankers/business to follow his policy of VOLUNTARY NON - COERCIVE COOPERATION where he gave tax breaks in return for private sector economic investment Hoover also organized some private relief agencies for the unemployed he worked out a system with European powers that owed U.S. money as a result of WWI debts = HOOVER MORATORIUM - put a temporary stop to war debt & reparations payments Euro. countries were to purchase American goods instead to stimulate American economy      in early 1931 these measures appeared successful, but then......the TARIFF WARS Democrats in Congress passed a high tariff (SMOOT HAWLEY) to protect U.S. industry (hoped to stimulate purchasing of U.S. goods) this turned out to be a fatal error... Congress did not understand that the world had become a GLOBAL ECONOMY in retaliation other countries passed high tariffs and no foreign markets purchased American goods, so U.S. productivity decreased again      also in 1931, the Soviets flooded the world market with cheap wheat (1/2 U.S. price) in an attempt to get money to pay back Austrian banks ( but price was too low and they couldn't) this resulted in the BANKERS’ PANIC Austrian banks borrowed from German banks and appealed to the BANK OF INT'L SETTLEMENT (Fr veto) Austrian banks and loaning German banks therefore were forced into bankruptcy and b/c German banks had borrowed from Americans, U.S. banks began to go bankrupt, wiping out life savings of thousands of Americans     Hoover was increasingly unpopular, but he continued to try... → he persuaded Congress to establish the RECONSTRUCTION FINANCE CORPORATION had power to make emergency loans to banks but it was too little too late… and Hoover wouldn't involve himself in any programs of direct gov'tal aid to individuals -didn't want to erode Americans sense of "RUGGED INDIVIDUALISM"      people were frustrated - isolated protest movements EX: Dairy farmers frustrated w/low price of milk refuse to sell (dump it) EX: WW1 veterans (pensions discontinued by congress) march on Washington = BONUS MARCH (by BONUS ARMY) they reached Washington by 1931, set up shantytowns = HOOVERVILLES (food scraps = HOOVER-MEALS, hitchhiking journeys = HOOVER RIDES) after one year they were forcibly dispersed by the Army (MacArthur/Eisenhower)      1932 ELECTION 1 out of 4 was unemployed… nat'l income was 50% of what it had been in 1929 Repubs. nominated Hoover → no hope winner by a landslide = FRANKLIN DELANO ROOSEVELT (Dem N.Y. governor)     this was the name FDR gave to his new program to fight the Depression it was a revolution in American society - changed completely the way the gov't functions the first phase of the New Deal dealt exclusively w/ eco. reform unlike Hoover, FDR believed gov't legislation/involvement was crucial to stimulate the economy step 1 - dealt w/ the banking crisis - BANKING HOLIDAY- banks shut down and subject to gov't inspection, allowed to open when "healthy"- people's confidence returned → they redeposited, allowing banks to invest in the economy   step 2 - stock market reform- Security Exchange Commission est. to police the NYSE (first chmn. was Joseph P. Kennedy)- practice of buying on margin was regulated step 3 - to put more $ in circulation, FDR went off the GOLD STANDARD (gov't could print more $ than Fort Knox gold reserves would allow)- w/ more $ in circulation, wages and prices increased (= inflation), causing dollar value to lowergave gov't spending power (Keynesian economics)   NATIONAL INDUSTRIAL RECOVERY ACT (NIRA) and NATIONAL RECOVERY ADMIN (NRA) were established to end animosity b/n labour and business → all was redirected to industrial growth → fair labour codes established wages, no child labour, shortened work hours- business people challenged the NRA, claiming it was communist they formed the LIBERTY LEAGUE at LL's urging, the Supreme Ct. overturned the NIRA & NRA, claiming that fed. gov't was exceeding its authority (by interfering in state jurisdiction)  TENNESSEE VALLEY AUTHORITY (TVA) - used to promote hydroelectric power, control flooding lower rates → private industry, manuf. fertilizer →fed. gov't. took ownership (nationalization v. privatization)  Kansas City from Politics, Farming, & the Law  Thomas Hart Benton, 1936 The Annual Move by Otis Dozier, 1936 Construction of the Dam by William Gropper      AGRUCULTURAL ADJUSTMENT ACT (AAA) - passed in 1933 to aid formersits objective was to restore farmers' purchasing power and to restore the family farm - AAA had farmers cut back on crop production by paying them equivalent SUBSIDIES (paid not to produce) - bad side: 1) food production down when millions were starving 2) Black sharecroppers were hurt: white landowners paid not to farm so they got rid of Black tenant formers in 1935, AAA was declared unconstitutional by courts (too much control over individual states), so it was revised and introduced as new legislation EX: Food Stamp Act of 1939 - gave away surplus food to poor, also guaranteed (small) farmers a market    UNEMPLOYMENT - still a major problem FDR like Hoover was wary of gov't handouts - he wanted people to earn their keep so gov't agencies were created - temporarily - to address the unemp. problem CIVILIAN CONSERVATION CORPS (CCC) - in 1933 - set to establish work for young men (18-25) in areas of reforestation, soil conservation, flood control, road construction - also took them out of urban labour markets - but Blacks not permitted to enrol     other agencies had specific mandates too...NATIONAL YOUTH ADMIN. (NYA) created jobs for young in urban areas FED. EMERGENCY RELIEF ACT (FERA) aimed at older workers- these and other similar agencies worked well, but unemp. was still at 6 million in 1941(solution for this would be the ind. boom of WW2) NEW DEAL - SOCIAL REFORM ASPECT- after 1935, w/ immediate economic relief & reform addressed, New Deal turned to Social Welfare - more legislation... National Labour Relations Act (aka Wagner Act)- it legitimized unions and labour tactics such as collective bargaining & collective action (strikes, etc...) - it outlawed BLACKLISTS & other anti-union practices Social Security Act (1935)feared by opponents as "creeping socialism"- this act typifies the WELFARE STATE - unemployment insurance, old age pensions  Problem: it took some $ out of circulation (payroll deductions) at a time when purchasing power was already low- also, it only covered the unemployed  1936 - "Soak The Rich" tax       ELECTION OF 1936 - FDR won easily (v Repub. Alf Landon Kansas governor) this victory gave FDR a mandate to continue his New Deal policies first objective: to reorganize the Supreme Court - they disallowed some New Deal legislation FDR wants # of judges changed from 9 →15 (to "pack the court") - great opposition, so FDR w/drew this proposal but judges retired & FDR got to appoint new ones → they approved all New Deal legislation the late 1930's – new Qs arose…  FDR concerned w/ int'l issues  in 1939 he proposed no new major domestic reform measures (1st time in his pres.)  ELECTION OF 1940 - FDR broke with tradition & ran a 3rd time  FDR v. Wendell Wilkie - the big issue here was American support of the Allies (G.B.), now embroiled in WWII v. Nazi Ger.  both U.S. pol. parties wanted to support G.B. but to remain neutral - in fact a CONSENSUS had developed b/n the Dems. and Repubs.  both parties approved of (most) New Deal legislation & wanted an isolationist foreign policy- FDR won in 1940 (and again in 1944)     a 3rd revolution in American culture and politics- more gov't involvement but w/in the context of traditional U.S. democracy (not socialist…) New Deal helped in stimulating the U.S. economy, but only WWII would solve any lingering problems → unemployed found jobs in munitions factories and the military as the U.S. became the ARSENAL OF DEMOCRACY New Deal saw expansion of U.S. gov't in : 1) eco. - constant gov't intervention/deficit spending 2) social reform - welfare state - after this pt the U.S. gov't was expected to play a role in any economic crisis  so FDR fundamentally reformed (not transformed) American society…
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