Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
The Great Depression (34 page)
It is curious that often the boy or man who lives alone and has few friends turns out to be the greatest success. They say that as a college student Calvin Coolidge was a red-headed boy with a poor personality and few friends—yet he became Governor and President.
Yesterday I had lunch with a lawyer of Youngstown—age 42—never had much of a practice—always poorly dressed and few friends. Yet in 1932 he had $5000 in cash accumulated out of his small earnings. He had the courage to invest it all in common stocks at bargain prices—and he had the patience or foresight to hold these stocks until the present day—they are now worth over $100,000. He asked me “what next.” Hold the stocks or sell and if he sells what to do with the money. My advice was to secure for himself a life income either thru annuity insurance, good bonds or a living trust. I am curious to see how his case will turn out. He never was the possessor before of much money. He has learned the first rule for building wealth—how to accumulate—but has he learned the second step which is to hold that wealth and make it work for him so that he will have income without loss of principal?
Within the past few days President Roosevelt delivered his annual address to Congress and his budget message. It is discouraging to those who hoped he would balance the budget and drastically cut expenditures after election. He still seems in a spending mood and even tho recovery is here he continues the extravagant money spending agencies created during the depression. It seems to indicate that the present administration will not—even if it could—take the drastic steps necessary to prevent the coming of an inflation.
Former Vice Pres. [Charles G.] Dawes is writing a book on economics laying down the theory I have believed in—that each depression follows the course of former similar depressions—and that in the midst of a major depression—a study of former depressions will give us a fairly accurate glimpse into the future—as to when the depression will end—its severity etc. Each time in a depression new theories and “New Deals” are tried out but rarely do they seem to change the basic structure of the economic cycle.
The march of business has continued upward now without a break for two years since March 1935. It is one of the most amazing recoveries ever witnessed and just now we seem to be entering a boom period. [Undated note added: “The market broke badly within 30 days.”] Steel mills have been operating at capacity for a long time, stores are crowded, wages and prices are rapidly rising and again the common man has money to spend. Even now, however, the law profession and the building trades lag in the rear of recovery. My business is better but not normal and it comes in spurts. Real estate rentals are high, vacant houses at a premium and the banks have unloaded most of their foreclosed property—but building of new residences has lagged.
The stock market has plowed ahead also for two years and is now at a dizzy peak. Many people have made fortunes—brokers’ offices are again crowded and everybody talks stocks. We have all the signs of another boom and a coming inflation.
Sheet & Tube which sold in 1932 for 6 is now over 100 and pays $3 dividend. Truscon (1932-2) now 25; Republic (1932-2) now 45; U.S. Steel (1932-25) now 125.
And so it goes. Very few people bought in 1932 and held until now. They usually sold where they could double or treble their money. If they had held on they could have gotten 20 or 30 to 1.
The greatest chance in a lifetime to build a fortune has gone and will probably not come again soon. Very few people had any surplus to invest—it was a matter of earning enough to buy the necessaries of life—and those who had a little money hoarded it and were afraid to buy stocks, bonds and real estate that nobody wanted.
Inflation? It seems to be near at hand. Rising prices, continued government spending and speculative craze all point that way.
President Roosevelt is still hell-bent for reform and his latest proposal is to pack the Supreme Court so it will hold constitutional his New Deal laws.
Business continues on the up-grade with very little interruption. Strikes in labor have caused an occasional slowing down but soon again the pace is accelerated. The motor and steel industries are working at capacity. Each day the newspaper contains long lists of new automobile sales. It seems as tho the roads are too crowded now. Stores are busy, real estate and building show signs of activity and people everywhere are refurnishing their homes etc.
In the face of all this prosperity the law profession continues to lag. Business has shown improvement but it is still far below normal. It seems as tho the lawyer will have to build up a back-log of pending cases before he can have a steady income again. Also it seems that the wheels of business will have to operate for awhile again before law cases will arise.
Ohio steelworkers formed the Steel Workers Organizing Committee(SWOC) in April 1936 to demand higher wages and better working hours. In the “Little Steel Strike” of 1937 that followed, more than 28,000 workers halted operations at three “Little Steel” companies by late May: Inland Steel, Republic Steel, and Youngstown Sheet & Tube. Riots in Youngstown on June 9 and 10 resulted in the deaths of two strikers and the wounding of twenty-three workers. This June 23, 1937 “Labor Holiday” parade at the main gate of Republic Steel was met with National Guard troops. (Ohio Historical Society)
In the past few weeks the stock market has shown signs of faltering. The government continues a policy of prodigal spending—and under the surface of a seeming return to prosperity, there is the constant fear of inflation.
EDITOR’S NOTEIn the spring of 1937 a major confrontation broke out between unionized steelworkers and several of Youngstown’s largest steel companies; it would come to be known as the “Little Steel Strike,” because collectively the companies—including Republic Steel and Youngstown Sheet & Tube—were called “Little Steel.” The steelworkers in Youngstown and South Chicago had become increasingly militant under the ascendancy of John L. Lewis and the Committee for Industrial Organization (later the Congress of Industrial Organizations). Indeed, Gus Hall, who would later become the head of the American Communist Party, was sent to Youngstown to organize during this period. Workers used sit-down strikes to keep their employers from bringing in nonunion labor. The companies, which were adamantly opposed to a unionized workforce despite the legal right to organize, at times resorted to teargassing employees to force them to leave the buildings. The state was eventually forced to call in the National Guard, and in a June clash between company guards and strikers two people were killed and almost two dozen injured. Later the companies were found to have violated federal law, and in 1942 the company recognized the steelworkers’ union as the workers’ representatives.
Business continues at a fast pace but in Youngstown it is interrupted by a steel strike—the first since 1919.
Stock prices remain about the same although there has been some recession in the past few weeks. Gen. Dawes predicts that in Sept. 1939 we will have a 2-year minor depression and then a long period of prosperity. He bases his prediction on the pattern of the 1873 depression.
As recovery proceeds a great many companies that went thru receivership are pulling out of the hole and their stocks are going up. Purchasers of these stocks are making fabulous profits. Continental Shares pfd sold at 25¢ a share while in receivership—recently as high as $25 per share with good future prospects. Standard Textile pfd sold at 50¢ and the bonds at 7. New stock now being offered and the bonds will get cash, pfd and common to the full amount. In almost all of these cases—even where they went into bankruptcy—the final payout is far in excess of the depression prices. The opportunity to buy these receivership stocks came at the tail-end of the depression. It was a fertile field for the small investor but required considerable courage because they were hopelessly in debt. This was particularly true of holding companies, railroads, etc. The quick pick-up of business and the swift rebound of stocks in the past two years changed the entire picture.
12/21/37It now seems that when a company goes thru reorganization it is better to wait until it is reorganized and new stock issued. Holders of the new stock throw it on the market for anything it will bring. You can then buy on values and if the reorganization has been drastic there is every chance to profit in a year or two.
We are having a bad steel strike in Youngstown and the mills have been closed for 3 weeks. It looks like a long drawn-out controversy. The nonunion men planned to march on the mills in a body this morning and open them but the governor declared martial law and state troops kept the mills closed. There has been much labor trouble lately and a great deal of violence. The state and federal governments seem to support the labor unions and there has been a complete breakdown of law and order. Business is very quiet and everybody is hoping the strike will end soon.
I have made no entry for several months because business seemed to be normal and it looked as tho it would continue for some time. About six weeks ago, however, the stock market had a bad break and since then it has gone steadily downward with hardly a pause until now almost all the gains for the past year have been wiped out.
There was no slump in business and no warning. Since then business has slumped and everybody is pessimistic. We have had over 2 years of recovery since March 1935. The chart of 1873 shows that after 2 years of recovery came a slump that lasted a year and then several years of good business. I wonder if we are in for that now.
During past 2 years of general recovery, the law profession lagged behind. We are still badly in debt and have not yet had a chance to recover. It has been a long, hard pull.
The stock market break which has continued since early in September resulted in the worst break since 1929—on Monday and Tues. on each day stocks lost as high as 15 points—yesterday almost 7 1/2 million shares changed hands—ticker 22 minutes behind—talk of closing stock exchanges, etc. In last hour there was a rally which wiped out most of the losses. It is generally believed that business will be slow this winter. There is fear and pessimism in the air. Nobody seems to be able to explain why it happened. Most popular reason is that prosperity of past 2 years was a false prosperity built on government expenditures and now it has collapsed.
Needless to say stock prices look cheap today.
The stock market slump continues now in its 7th week. President Roosevelt calls a special session of Congress. There is talk of further devaluation of the dollar and other quack remedies to stop the slump. Russel Weisman predicts in this morning’s
Plain Dealer
that this slump will develop into a major depression if the government again tinkers with the money or starts another spending spree.
Plain Dealer
that this slump will develop into a major depression if the government again tinkers with the money or starts another spending spree.
Business continues bad—steel mills operating in the red at 50%—stock market stagnant—nobody sure whether the slump will be short or of long duration.
Congress meets in special session and all kinds of plans are urged to help business. The real need is for cessation of government spending—balanced budget—and a return to the orthodox theories of economics. I fear tho that Congress will turn to one of its numerous panaceas such as reducing the gold content of the dollar again or further government spending.
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