One way of making money during the 1920's was to buy stocks and shares. Prices of these stocks and shares constantly went up and so investors kept them for a short-term period and then sold them at a good profit. As with consumer goods, such as motor cars and washing machines, it was possible to buy stocks and shares on credit. This was called buying on the "margin" and enabled "speculators" to sell off shares at a profit before paying what they owed. In this way it was possible to make a considerable amount of money without a great deal of investment. During the first week of December, 1927, "more shares of stock had changed hands than in any previous week in the whole history of the New York Stock Exchange."
As with consumer goods, such as motor cars and washing machines, it was possible to buy stocks and shares on credit. This was called buying on the `margin' and enabled `speculators' to sell off shares at a profit before paying what they owed. In this way it was possible to make a considerable amount of money without a great deal of investment.
Will Payne, stated in 1929 that it had become so easy to make money on the Wall Street Stock Exchange, that it had ceased to become a gamble. He went on to say that a gambler wins only because someone loses, when you invest in stocks and shares everybody wins.
Primary Sources
(Source 1) Frank Hanley, Up three points. My Gawd, I jumped too soon (10th January, 1930)
Throughout 1927 speculation had been increasing. The amount of money loaned to brokers to carry margin accounts for traders had risen during the year from $2,818,561,000 to $3,558,355,000 - a huge increase. During the week of December 3, 1927, more shares of stock had changed hands than in any previous week in the whole history of the New York Stock Exchange. One did not have to listen long to an after-dinner conversation, whether in New York or San Francisco or the lowliest village of the plain, to realize that all sorts of people to whom the stock ticker had been a hitherto alien mystery were carrying a hundred shares of Studebaker or Houston Oil, learning the significance of such recondite symbols as GL and X and ITT, and whipping open the early editions of afternoon papers to catch the 1.30 quotations from Wall Street.
The stock market hysteria reached its apex in 1929. Everyone gave you tips for a rise. Everyone gave you tips for a rise. Every was playing the market. Stocks soared dizzily. I found it hard not to be engulfed. I had invested my American earnings in good stocks. Should I sell for a profit? Everyone said, "Hang on - it's a rising market". On my last day in New York I went down to the barber. As he removed the sheet he said softly, "Buy Standard Gas. I've doubled. It's good for another double." As I walked upstairs, I reflected that if the hysteria had reached the barber-level, something must soon happen.
(Source 4) John Cassel, The Way to Prosperity (30th October, 1931)
The common stocks of their country have in the past ten years increased enormously in value because the business of the country has increased. Ten dollars invested ten years ago in the common stock of General Motors would now be worth more than a million and a half dollars. And General Motors is only one of may first-class industrial corporations.
If a man saves $15 a week, and invests in good common stocks, and allows the dividends and rights to accumulate, at the end of twenty years he will have at least $80,000 and an income from investments of around $400 a month. He will be rich. And because income can do that, I am firm in my belief that anyone not only can be rich, but ought to be rich.
I knew something was terribly wrong because I heard bellboys, everybody, talking about the stock market. About six weeks before the Wall Street Crash, I persuaded my mother in Rochester to let me talk to our family adviser. I wanted to sell stock which had been left me by my father. He got very sentimental: "Oh your father wouldn't have liked you to do that." He was so persuasive, I said O.K. I could have sold it for $160,000. Four years later, I sold it for $4,000.
Confidence in the soundness of the stock market structure, not withstanding the upheaval of the last few days, was voiced last night by bankers and other financial leaders. Sentiment as expressed by the heads of some of the largest banking institutions and by industrial executives as well was distinctly cheerful and the feeling was the worst had been seen. Wall Street ended the day in an optimistic frame of mind.
Believing that fundamental conditions of the country are sound and that there is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges during the past week, my son and I have for some days been purchasing sound common stocks.
Stock prices virtually collapsed yesterday, swept downward with gigantic losses in the most disastrous trading day in the stock market's history. Billions of dollars in open market values were wiped out as prices crumbled under the pressure of liquidation of securities which had to be sold at any price.
There was an impressive rally just at the close, which brought many leading stocks back from 4 to 14 points from their lowest points of the day.
Efforts to estimate yesterday's market losses in dollars are futile because of the vast number of securities quoted over the counter and on out-of-town exchanges on which no calculations are possible. However, it was estimated that 880 issues, on the New York Stock Exchange, lost between $8,000,000,000 and $9,000,000,000 yesterday. Added to that loss is to be reckoned the depreciation on issues on the Curb Market, in the over the counter market and on other exchanges.
Banking support, which would have been impressive and successful under ordinary circumstances, was swept violently aside, as block after block of stock, tremendous in proportions, deluged the market. Bid prices placed by bankers, industrial leaders and brokers trying to halt the decline were crashed through violently, their orders were filled, and quotations plunged downward in a day of disorganization, confusion and financial impotence.
Groups of men, with here and there a woman, stood about inverted glass bowls all over the city yesterday watching spools of ticker tape unwind and as the tenuous paper with its cryptic numerals grew longer at their feet their fortunes shrunk. Others sat stolidly on tilted chairs in the customers' rooms of brokerage houses and watched a motion picture of waning wealth as the day's quotations moved silently across a screen.
It was among such groups as these, feeling the pulse of a feverish financial world whose heart is the Stock Exchange, that drama and perhaps tragedy were to be found. The crowds about the ticker tape, like friends around the bedside of a stricken friend, reflected in their faces the story the tape was telling. There were no smiles. There were no tears either. Just the camaraderie of fellow-sufferers. Everybody wanted to tell his neighbor how much he had lost. Nobody wanted to listen. It was too repetitious a tale.
(Source 11) Number of suicides per 100,000 of population, 1926-1933
Billions of dollars' worth of profits - and paper profits - had disappeared. The grocer, the window-cleaner, and the seamstress had lost their capital. In every town there were families which had suddenly dropped from showy affluence into debt. Investors who had dreamed of retiring to live on their fortunes now found themselves back once more at the very beginning of the long road to riches. Day by day the newspapers printed the grim reports of suicides.
(Source 13) Popular joke after the Wall Street Crash (1930)
Did you hear about the fellow who engaged a hotel room and the clerk asked him whether he wanted it for sleeping or jumping?
Questions for Students
Question 1: What do Cecil Roberts and Alec Wilder's accounts of stock exchange speculation have in common?
Question 2: Study sources 5, 7 and 9. For what reasons would industrial executives and heads of banking institutions be willing to claim in the New York Times that they were "distinctly cheerful" and that "the worst had been seen"?
Question 3: Compare the prices in source 8. If you had 100 shares in each of these seven companies on 3rd March, 1928: (a) Which company would have made you the most money if you had sold them on 3rd September, 1928? How much money would you have made? (b) Which company would have lost you the most money if you had sold them on 13th November, 1929? How much money would you have lost?
Question 4: Study sources 1, 12 and 13. How do these sources help to support a myth that appears to be contradicted in source 11? Drawing on your own knowledge of the period, can you explain the change in the suicide-rate in 1933.
Question 5: What difficulties stand in the way of the construction of a table of accurate statistics? Make reference to source 11 in your answer.
Answer Commentary
A commentary on these questions can be found here.
