16 February 2011
Crowds gather in the Wall Street district of Manhattan in reaction to the heavy losses on the stock market on October 24, 1929, or "Black Thursday"
Welcome to THE MAKING OF A NATION – American history in VOA Special English.
The election of Herbert Hoover in nineteen twenty-eight made Americans more hopeful than ever about their future.
Hoover seemed to have just the right experience to lead the nation to more economic progress. He was an engineer and businessman who had served in the government as commerce secretary. He understood economics and had faith in the future of private business.
On a rainy day in March of nineteen twenty-nine, Hoover rode down Pennsylvania Avenue in Washington to become the new president. "I have no fears for the future of our country," he told the cheering crowd. "It is bright with hope."
This week in our series, Faith Lapidus and Bob Doughty tell more about the Republican administration of Herbert Hoover.
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FAITH LAPIDUS: The clearest evidence of the public's faith in the economy is the stock market. And the New York Stock Exchange reacted to the new president with a wild increase in prices. During the months after Hoover's election, prices generally rose like a rocket. Stocks valued at one hundred dollars climbed to two hundred, then three hundred, four hundred. Men and women made huge amounts of money overnight.
Publications and economic experts advised Americans to buy stocks before prices went even higher. Time and again, people heard how rich they could become if they found and bought stocks for companies growing into industrial giants.
"Never sell the United States short," said one publication. Another just said, "Everybody ought to be rich."
BOB DOUGHTY: A number of economic experts worried about the sharp increase in stock prices that followed Hoover's election. The president himself urged stock market officials to make trading more honest and safe. And he approved a move by the Federal Reserve Board to increase the interest charged to banks.
However, both efforts failed to stop the growing number of Americans who were spending their money wildly on stocks.
Some experts pointed to danger signs in the economy during the summer of nineteen twenty-nine. The number of houses being built was dropping. Industries were reducing the amount of products that they held in their factories. The rate of growth in spending by average Americans was falling sharply. And industrial production, employment, and prices were down.
These experts warned that the American economy was just not strong enough to support such rapid growth in stock prices. They said there was no real value behind many of the high prices. They said a stock price could not increase four times while a company's sales stayed the same. They said the high prices were built on foolish dreams of wealth, not real value.
FAITH LAPIDUS: But the prices went still higher. Buyers fought with each other to pay more and more for company stocks. The average price of all stocks almost doubled in just one year.
It seemed everybody was buying stocks, even people with little money or economic training.
A clothing salesman got advice from a stock trader visiting his store and made two hundred thousand dollars. A nurse learned of a good company from someone in the hospital. She made thirty thousand dollars. There were thousands of such stories.
By early September, the stock market reached its high point of the past eighteen months. Shares of the Westinghouse company had climbed from ninety-one dollars to three hundred thirteen. The Anaconda Copper company had risen from fifty-four dollars to one hundred sixty-two. Union Carbide jumped from one hundred forty-five to four hundred thirteen.
Life was like a dream. But like any dream, it could not last forever.
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BOB DOUGHTY: In September, nineteen twenty-nine, stock prices stopped rising.
During the next month and a half, stock prices fell, but only slowly. Then suddenly, at the end of October, the market crashed. Prices dropped wildly. Leading stocks fell five, ten, twenty dollars in a single day. Everyone tried to sell their stocks. But no one was buying. Fear washed across the stock market. People were losing money even faster than they had made it.
FAITH LAPIDUS: The stock market collapsed on Thursday, October twenty-fourth, nineteen twenty-nine. People remember the day as "Black Thursday," the day the dreams ended.
The day began with a wave of selling. People from across the country sent messages to their stock traders in New York. All the messages said the same thing: Sell! Sell the stocks at any price possible! But no one was buying. And so down the prices came.
The value of stock for the Montgomery Ward store dropped from eighty-three dollars to fifty in a single day. The RCA radio corporation fell from sixty-eight dollars to forty-four – down twenty-four dollars in just a few hours. Down the stocks fell, lower and lower.
Several of the country's leading bankers met to discuss ways to stop the disaster. They agreed to buy stocks in large amounts to stop the wave of selling. The bankers moved quickly. And for two days, prices held steady.
But then, like snow falling down the side of a mountain, the stocks dropped again. Prices went to amazingly low levels. One business newspaper said simply: "The present week has witnessed the greatest stock market disaster of all time."
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BOB DOUGHTY: The stock market crash ruined thousands of Americans. In a few short weeks, traders lost thirty billion dollars, an amount almost as great as all the money the United States had spent in World War One.
Some businessmen could not accept what had happened. They jumped from the tops of buildings and killed themselves. In fact, one popular joke of the time said that hotel owners had to ask people if they wanted rooms for sleeping or jumping.
But the stock market crash was nothing to laugh about. It destroyed much of the money that Americans had saved. Even worse, it caused millions of people to worry and lose faith in the economy. They were not sure what to expect tomorrow. Business owners would not spend money for new factories or business operations. Instead, they decided to wait and see what would happen.
This reduced production and caused more workers to lose their jobs. Fewer workers meant fewer people with money to buy goods. And fewer people buying goods meant less need for factories to produce. So it went. In short, economic disaster.
FAITH LAPIDUS: Why did the stock market crash? One reason, people had been paying too much for stocks. Everyone believed that prices would go higher and higher forever. People paid more for stocks than the stocks were worth. They hoped to sell the stocks at even higher prices.
It was like a children's balloon that expands with air, blowing bigger and bigger until it bursts.
But there were other important reasons. Industrial profits were too high and wages too low. Five percent of the population owned one-third of all personal income. The average worker simply did not have enough money to buy enough of all the new goods that factories were producing. Another problem was that companies were not investing enough money in new factories and supplies.
There were also problems with the rules of the stock market itself. People were allowed to buy stocks when they did not have the money to do so.
BOB DOUGHTY: Several government economic policies also helped cause the stock market crash of nineteen twenty-nine. Government tax policies made the rich richer and the poor poorer. And the government did little to control the national money supply, even when the economy faced disaster.
The stock market crash marked the beginning of the Great Depression -- a long, slow, painful fall to the worst economic crisis in American history. The Depression would bring suffering to millions of people. It would cause major political changes. And it would be a major force in creating the conditions that led to World War Two.
We will look at the beginning of the Great Depression in our next program.
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JIM TEDDER: Our program was written by David Jarmul. The narrators were Faith Lapidus and Bob Doughty. You can find our series online with transcripts, MP3s, podcasts and pictures at voaspecialenglish.com. You can also follow us on Facebook and Twitter at VOA Learning English. Join us again next week for THE MAKING OF A NATION -- an American history series in VOA Special English.
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This is program #176