MONEY The great slump
Ever since I went into the City at the time of the Wall Street crash I have always wanted to write a history of the great depression. But time slipped by and now Goronwy Rees has done it for me and with far greater factual detail than I would have mustered.* I found it fascinating. It is not a book - for the economist. It is written for the ordinary man who is interested in the history of an astonishing period which saw the breakdown of capitalism and the descent into utter hopelessness of most capitalist governments. Rees recites the drama year by year, almost month by month, starting with the crash of the bull market in Wall Street in 1929 and ending with the accession to power of Roosevelt and Hitler in 1933. Although that was by no means the end of the slump. It reads like a thriller, which it is, but the writing just avoids over-dramatisation.
Rees is not an economist and rightly avoids drawing economic conclusions. The classic book for the economist was written by Galbraith in 1955, The Great Crash, and even he is careful to say that the crash can be more readily explained than the world depression which followed it. The final answer on that has yet to be given. The causes of the Wall Street crash seemed to me at the time as clear as daylight. The market had been building up a bull position under Coolidge and finally went mad when Hoover was elected. No one could see any end to American prosperity. Capitalism was work- ing perfectly. Business was booming without any wage-price inflation. So the financiers got busy, issuing more and more common stock each month at rising prices to the gulli- ble public. Holding companies were formed to hold the operating companies, investment trusts were formed to hold the holding companies, every opportunity was taken, however dishonest, to float more paper on the market because in a few weeks the market price would double giving enormous profits to the floaters. The bubble was bound to burst which it did on 24-29 October when the market became grossly saturated and 'over-bought'. Often it is an outside event which starts the selling and in this case it was the Hatry crash in London on 20 Oct- ober. Rees does not, I think, attach enough importance to this cause. I well remember the sensation of the Hatry fraud. The word flashed round the City—Sell everything: Sell Wall Street'. Being five hours ahead of Wall Street time we were able to start the selling race before the pistol had fired. Of course, the wily old Barney Baruch had unloaded all his vast holdings a month earlier when the market was still on the
After the October-November crash there was a recovery up to May the following year but then the market began to sink and col- lapse and by the end of 1930 the more outrageous speculations were down to a tenth of their 1929 highs. The year 1931 was described by Toynbee as annus terrihilis. Unemployment in the United States rose to
101 million, in Germany to over 6 million, in Britain to more than 2f million, in Italy to over 1 million. Only France escaped with a moderate rise to 347.000. Keynes described it as a catastrophe 'due almost entirely to economic causes'—the collapse in commodity prices, the slump in profits and investment and the cessation of lending—but, as Rees points out, there were many political causes as well, especially in Germany. But this main fact stands out: there had been an orgy of stock speculation on Wall Street. a national gamble on a gigantic scale, and the collapse of it had caused billions of dollar paper wealth to vanish. Everyone—individuals, family trusts, companies and banks—had lost their savings. The mal-distribution of wealth at that time made a slump inevitable and it spread to Europe through the collapse of banks irr Austria and Germany.
What made matters worse was the ap- palling ignorance of elementary economics. Keynes at that time had not written his great work. Governments believed that after a wicked speculative orgy budgets must be balanced government expenditure cut, lend- ing reduced and the disciplines of the gold standard maintained. The perpetual financial crisis in Germany arising out of the payment of reparations is admirably described in Rees's chronicle. I am delighted that he brings out the tricky cleverness of Dr Schacht, then President of the Reichsbank, ' a man of con- suming ambition and deceptive manners' ac- cording to General Groener. I had an en- counter myself with Hitler's press chief in August 1932 and exposed Dr Schacht as a Nazi in an article in the News Chronicle. Without Schacht's financial skill in con- cocting the bilateral trade agreements Hitler would never have been able to finance German rearmament. I thought Schacht was lucky to have escaped with his life from the Nuremberg tribunal.
We who are now alarmed by violence of a revolutionary order may be surprised to read how much violence flared up in America and Germany even before Hitler appeared on the national scene. In the spring and summer of 1932 there were a long series of American strikes which, says Rees, 'threatened the en- tire structure of public order in Illinois, Arkansas. Ohio, Indiana and West Virginia'. In the coal fields in south Illinois. where families were living on charity of $1.30 a week, marchers were met by machine guns and rifles. Strike leaders mysteriously disappeared. One was shot down on his own
doorstep by hired gunmen. The most ex- traordinary story he tells is that of the BEE or Bonus Expeditionary Force. War veterans led by an ex-sergeant demanded payment of their war bonus which was not due for pay- ment until 1945. They marched on Washington and gathered forces. camping on the mud flats across the Anacostia river. An ex-Veteran superintendent of the Washington police helped them to feed and house themselves in shacks but morale broke down with the spread of sickness and disease. A group of veterans, egged on by communists, occupied some abandoned buildings on Pennsylvania Avenue. There was violence and two veterans were shot dead. Then the government ordered the regular army to clear the camps. At its head', writes Rees, 'on a white horse rode General Douglas MacArthur, chief of staff of the us Army, accompanied by his aide Colonel, Dwight D. Eisenhower' Tear gas bombs were thrown, the shacks set on fire and the BEI' dispersed. 'Major George Pat- ton personally accomplished the destruction of a shack which happened to belong to a veteran who during the war had been decorated for saving the major's life.' Presi- dent Hoover offered loans to veterans return- ing home, the cost to be deducted from the bonus when it was eventually paid. Governments are more humane today. By contrast there was very little violence in Bri- tain. You have to have something more in your belly than fire. Anyone who saw the hunger marchers, as I did, will never forget the gaunt faces and the look of resigned despair.
Can it happen again? Certainly a stock market slump of international proportions can happen again. It very nearly did this year on the collapse of the international I.O.S. group which. I trust, will now be saved. In this country companies can go bust through a combination of wage inflation, profitability loss and liquidity squeeze. There could be another outbreak of economic mad- ness—perhaps over money supply. But the structure of the financial system is no longer unsound as it was in the thirties and governments are no longer powerless to intervene. Moreover, we have hope, instead of hopelessness. But we should read Goronwy Rees's book to learn how not to treat a slump.
• The Great Slump, Goronwy Rees (Weidenfeld and Nicolson 55s)