The ticket tape that reports prices outside the Exchange fails increasingly behind. In the offices of J.P. Morgan and Company, where a group of top investment bankers are meeting, cooler heads prevail. In an effort to reverse the tide, Richard Whitney, vice president of the Exchange, is sent to the floor to purchase millions of dollars worth of key stocks. This action is successful and prices begin to steady.

Activity on the Exchange is relatively stable the next day, but on October 28, prices again tumble. This time the bankers do not try to halt the decline. On October 29 panic selling increases. The ticker tape is two and one-half hours behind and by the end of the day a record 16,410,030 shares have been sold, with a total loss in value of 880 issues estimated by The New York Times to exceed $8,000,000,000. Thousands of investors see their fortunes wiped out.

Economists, bankers, and politicians grope to find an explanation. Most believe that the economy is still sound and the market will soon recover. Some say it is merely a momentary psychological aberration. Secretary of the Treasury Andrew Mellon insists that the stock market debacle is an illness that will soon run its course and cure itself. Although there are signs that the problem goes much deeper, most prefer to ignore them. Examination of statistics reveals an increasing unemployment rate during the year prior to the crash and a great decrease in construction activity. Still most industry continues to prosper throughout the year and the automobile companies produce a record 3,000,000 cars.

President Hoover's troubles really began in the late autumn of 1929. The nation had been in the grip of a fictitious stock-market prosperity; and economic experts had been warning their friends privately for many months to get out of the market before the crash came. Stocks had been forced up by speculative buyers to fabulous prices: A.T. and T., for example, to $304 a share and United States Steel to $241. New securities worth $15,000,000,000 had been issued in one year. Trading had increased on the market from $223,000,000 shares in 1920 to 1,124,000,000 shares in 1929. Finally, the stock market crashed on October 23, wiping out an average of more than a billion dollars' worth of paper values a day. 

The previous frenzy of speculation gave way to a mad scramble on the part of everyone to get liquid. Every transaction drove down the market value of what had been considered gilt-edged securities, Gold flowed out of the country and both gold and Federal Reserve notes into the safety deposit boxes of private citizens, Unemployment mounted to more than 7,000,000 with a year, ultimately to the staggering total of 15,000,000 and those who continued to work did so under greatly reduced wage scales. For three and one half years ruinous deflation continued and its paralyzing effects spread to all parts of the world. Millions of people lost savings invested in gilt-edged securities. Millions more were reduced to beggary. Private charity proved incapable of sustaining the destitute. Little by little the totality of the collapse dawned upon an incredulous people. Destitution, despair, and divided counsels prevailed. No man of vision came forward with a program of relief. It was the price a people paid for more than a decade of political stagnation. Economists are pretty generally agreed on the causes of the economic debacle though there is less agreement on the relative importance of each:

Causes

1. There was an unbalanced world economy, with European nations staggering under tremendous burdens of debts and taxes, with depleted gold stocks, and with adverse trade balances, World War I purchases, payments on war debts, the fever of speculation, and fear of another European crisis had drawn to the United States the gold which the rest of the world needed for normal business purposes, and tariff walls kept them from getting it back again through normal trade processes.

2. The abnormal business conditions of the war and immediate postwar period had merged, in the United States, into a speculation boom in the late twenties which carried prices, and particularly prices of corporate stocks, far above real values. Year after year larger amounts of bank loans went into the speculative markets instead of into legitimate business channels. Banks were weighted down with government bonds, real estate mortgages based on greatly appreciated valuations, and highly speculative securities.

3. The approach of business and of government to the economic processes had been from the viewpoint of production. The vaunted prosperity had been a corporation prosperity. The problem of consumption had been ignored. Agricultural surpluses piled up as prices of farm products declined until farmers could no longer purchase the products of the factories. The returns from machine production were unevenly distributed. Technological unemployment increased, and year after year, larger amounts of money flowed out of the channels of consumers' trade and into the savings deposits of the relatively well-to-do. In short, the take of capital was too large, and the country was suffering from under consumption not from overproduction.

4. The government and particularly the Federal Reserve Board, had not checked credit inflation or imposed any sort of other restraints to keep inflation from getting out of control. It had not taken a realistic attitude toward the problems of agriculture, world trade, or labor, could begin again; that there should be economy in all branches of the government; and that expenditures for relief should come from sales taxes. The basic industries continued to reduce their labor forces and to pay dividends out of accumulated surpluses. Eighty-three corporations increased dividends on common stock a total of 5.9 percent during the first year of the depression although their earnings decreased 19.8 percent during the same period. 

Many corporations continued to pay the usual dividend rates after their earnings dropped to zero; and, at the same time, they were making wage cuts, laying off men, and reducing others to part time. Wages dropped 60 percent in three years. President Hoover made repeated appeals to prevent wage-cutting and the discharge of employees by industry, but to no avail. He held a series of conferences at Washington where he insisted that the shock of the depression ought to fall upon profits instead of wages, and that there ought to be no wage cuts if they could possibly be avoided. Industry, however, refused to act upon the principle that recovery depended upon restoration of the purchasing power of the masses.

The Administration, also, probably in the belief that the depression would be of short duration, approached the problem of the unemployed from the viewpoint of relief rather than restoration of purchasing power,. It, therefore, refused to countenance the use of federal funds for relief purposes. Only at the end of his administration did President Hoover agree to loans of federal funds to states whose resources had been exhausted by the burden of caring for the unemployed. His approach was the indirect one of revitalizing industry so people could go back to work, instead of increasing purchasing power so industry could resume production. More than $2,000,000,000 was appropriated for public works, including the Boulder Dam project on the Colorado River; but the two chief measures of the administration program were the creation of the Reconstruction Finance Corporation and the Home Owners Loan Banks.

The Reconstruction Finance Corporation Act passed Congress in January, 1932. It created a corporation under a board of seven directors, including the Secretary of the Treasury, the Governor of the Federal Reserve Board, and the Farm Loan Commissioner. It was capitalized at $500,000,000 and was authorized to sell a maximum of $1,500,000,000  worth of five-year notes or bonds to the public or to the Treasury of the United States. Regional offices were established for the purpose of making loans. These loans could be made directly to banks and railroads, to agriculture through the Department of Agriculture, and to industry by acceptance of bills of exchange. Loans were limited to five years and to a maximum of $100,000,000. Not even Congress was to be allowed information as to what loans were made, except the aggregate amount in each class and state. In July, 1932, the capital funds of the corporation were increased to $3,800,000,000; $500,000,000 for initial capital, $1,500,000,000 for loans to corporations, the same amount for construction loans on self-liquidating projects, and $300,000,000 for relief loans to states.

The Home Loan Bank Act of July, 1932, established a system of Home Loan Banks to discount home mortgages held by building and loan associations, savings banks, and insurance companies. The primary purpose of the Act was to rescue the banks. The Reconstruction Finance Corporation, during the first year of its existence, loaned $1,000,000,000 to banks. Nothing, however, seemed able to stop the trend toward a bank panic. Withdrawals continued, bankers refused to borrow and lend, and confidence was not restored. It became increasingly evident that the banks must close and in financial circles, that the gold standard would have to be abandoned. The banking crisis came at the close of Hoover's administration. Nearly 7000 had closed in the previous eight years, more than 2000 of them in 1931, and the entire structure was shaky. Banks were temporarily closed by governors' proclamations in Nevada in January, and in Louisiana in February, 1933. Governor Comstock of Michigan closed the banks of that state on February 14. By March 1, the holiday had been extended to more than half the states and three days later was decided upon in New York City. Almost the entire country was without banking facilities and without currency. On March 5, President Roosevelt by proclamation closed every bank in the country and ordered all movements of gold and silver stopped. That date marked the bottom of the depression.
 
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