After the Stock Market Crash of November, 1929

Part 1

Transcriber’s Notes:

Text enclosed by underscores is in italics (italics).

Additional Transcriber’s Notes are at the end.

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AFTER THE STOCK MARKET CRASH OF NOVEMBER, 1929

A SUPPLEMENTARY CHAPTER TO THE PSYCHOLOGY OF SPECULATION ISSUED IN 1926

BY HENRY HOWARD HARPER

PRIVATELY PRINTED

BOSTON--MDCDXXX

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THE TORCH PRESS CEDAR RAPIDS IOWA

AFTER THE STOCK MARKET CRASH OF NOVEMBER, 1929

By way of comment on the great speculative epidemic that spread over the country and indeed throughout the world the past five or six years, it may be observed that stock speculation, once considered a hazardous business, came to be generally regarded as a safe, dignified and profitable occupation. Of a certainty it became general, if nothing else. From a once precarious game of chance, to be indulged in only by daredevils and millionaires, it became so simple and well safeguarded that anyone with a little capital could in a short time double it and quadruple it. It was contended that inasmuch as we had successfully passed the twenty-year cycle in which, according to precedent, stock market panics are wont to occur, such disturbances had been relegated to history, and the Federal Reserve System obviated any possibility of their recurrence. This belief pervaded all classes from millionaires to house servants, and eventually the entire community became inoculated with the speculative germ. It got to be the principal topic of conversation in the clubs, cafes, hotel lobbies, on the street, and any place where two or more people were congregated. The many thousands of brokerage offices throughout the country were jammed to the doors by eager onlookers and participants who devoted themselves exclusively to the market from the opening to the close. Office boys, elevator men, manicures, hotel waiters, hairdressers, cab drivers, and even rural farmers initiated themselves into the game and discussed mergers, split-ups, stock dividends, and all such subjects in high finance with more profuseness and profundity than was ever displayed at a bankers’ convention.

Indeed for years it looked as if stocks could only go one way--up. Therefore the whole speculative fraternity arrayed itself on the up-side; and it actually happened that vast numbers of traders who had formerly bought stocks to sell at only a point or two profit, now accumulated them to keep indefinitely. The trading element, emboldened by one success after another, concluded that we were in a new era--that the stock market millennium had become a reality. In travel we advanced from the stage coach to the automobile and the aeroplane; from the slow sailing craft to the ocean greyhound. The radio and the telephone had linked the whole universe together in conversation, and in the art of creating wealth the old-fashioned slow-moving process of conservatism had become as obsolete as the stage coach. These facts were all too obvious to be disputed. And to prove there was simply no limit to modern inventions the stock market, backed by the new investment trust scheme, supplied a new financial vehicle without any reverse gears. It was fast and easy riding, the sensation was thrilling, and it required neither skill nor experience to operate. In 1924-6 during the try-out period of this marvellous get-rich-quick machine there were many skeptics who doubted its safety and efficiency; but confidence gradually increased and one after another became convinced, until eventually the whole populace clambered aboard.

Business was good, the country was rich and prosperous, and it was argued that a financial structure built upon such confidence and prosperity could not be shaken by anything short of a universal earthquake. Basic values had become so stabilized in the minds of the people that there was no more reason to expect them to crumble than there was to expect the Washington Monument to topple over. Even the gray-haired wizards of Wall Street who had preached caution for two or three years, finally fell into line with the new order of things, and not only did they plunge into the market long after it had passed the point of safety, but they organized more investment trusts running into billions of dollars, and advertised far and wide for the public to buy their stock and join them in amassing fortunes. They would manage everything, and all the people had to do was to furnish the money. These cold-blooded Wall Street magnates, suddenly converted to the theory of universal brotherhood, undertook to espouse the cause in which everybody works for one another. Verily the Biblical prophecy was more than fulfilled; for it came to pass that not only could the lamb lie down in safety with the lion,--he could feed with him at the Wall Street manger. The public was thus taken into these co-operative partnerships and enabled to enjoy all the advantages to be derived from the superior genius and directorship of the giants of wealth and commerce. The small investors and speculators, highly flattered by the opportunity of being admitted into such society, threw their savings into the melting pot with more confidence than as if they were putting them into a savings bank. Many of the trusts were legitimate; others were disguised gambling pools operating on other people’s money, along the lines proposed by the late “Tom” Lawson in the memorable advertising campaign he conducted in Bay State Gas. In most cases these gambling ventures were sponsored by names that inspired confidence; and those who bought participation certificates would undoubtedly have won if the stock market had never stopped going up. It was generally supposed that such men could not go financially wrong--and they didn’t; it was the public that went wrong in buying their certificates. One company after another launched its stock with great display advertisements, and no hungry trout ever bit at a fly with more avidity than the greedy public gobbled up these “investment” issues. Sober-minded people marvelled at the spectacle and wondered where all the money came from. In dozens of cases the advertisements stated that the stock had already been oversubscribed, and the notice appeared only as a matter of record. And so it happened that time and again the insatiate public was obliged to restrap its purse and wait for some new opportunity to be let in. It got so that many people felt it was about as difficult to get into these “closed” issues as it was to gain a membership in one of New York’s fashionable clubs.

Many of these so-called investment trusts accumulated thousands upon thousands of highly speculative common shares that paid less than 2% income on their market value. Indeed one day in September, 1929, a statistician figured that the twelve most active stocks on the New York Stock Exchange averaged a return of only one and three-fifths per cent. on their selling price, and with no immediate prospect of increased dividends. With dozens of investment companies hoarding securities, all one had to do was buy the active stocks, hold them for a big rise, then unload them onto some new investment trust. The pot was kept boiling by all sorts of rumors of stock dividends, split-ups, consolidations and such-like enticements; and when things quieted down a bit, someone would bring out the old reliable rumor that while the public was taking a breathing spell the big bankers were quietly accumulating large lines. It worked like magic on the inflamed public mind--it always does. If the bankers are buying, why shouldn’t the public buy? Another popular device was to broadcast reports accredited to Messrs. Coolidge & Mellon, to the effect that after scanning the speculative horizon they could discover no reason why the market should not keep on going up. With such a bulwark of confidence there was but little reason to be afraid. It did not matter whether stocks paid small dividends, or no dividends. It did not matter if money loaned at ten, twelve, or fifteen per cent. The rise in values would take care of all that, with ample to spare. Frequently one day’s advance in price would cover a whole year’s interest or more. Nor did it matter that brokers’ commissions had nearly doubled, and that this gigantic “kitty” was taking millions of dollars in toll every day. It works on the same principle as poker: if seven players sit into a game with a “kitty,” it’s only a question of time when at least six of them will go broke. I heard one trader proudly declare that in three years he had paid his broker upward of half a million dollars in commissions, and nearly twice that amount in interest.

Now and again the brokers’ letters and the comments of financial editors contained notes of warning, but the public having got the bit firmly in its teeth was like a runaway team: it could neither see nor hear anything that stood in the way of progress. Facts were more conclusive than theories; and since those arrayed on the constructive side had all the advantage in their favor for an almost uninterrupted period of several years, they indulged themselves in a delirium of dreams from which there appeared to be no awakening. It was as useless to warn people of the inevitable results as it would be to warn a young flapper against the approach of old age, or a carousing young sinner that the Judgment Day is coming. Many speculators were willing to admit that stocks might react sometime, but they were too drunk with prosperity to worry about anything so far in the future. The one thing that annoyed them was the occasional appearance of some venturesome “bear” at their banquet. Whereas in the past the bulls and bears had regarded each other as friendly antagonists, the bulls now came to look upon the bears as the deadly enemies of bullish society, and for a time this animal was threatened with total extinction. Anyone discovered short of stocks was viewed in about the same light as one caught with stolen goods; he was punished accordingly and the feast went merrily on. I know, because I was one of the offenders. But fortunately I got off with a light sentence.

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