The Great Depression, page 15
APRIL 20, 1933
The papers are full of details today of how and why U.S. went off gold standard. Stocks soar upward on theory that commodity prices will go up. I don’t see how or why prices should advance simply because we are off the gold standard unless real currency inflation follows by deflating value of the dollar. Everywhere the subject is being discussed and everybody seems to think they know all about the subject. A great deal depends now on further steps of the government toward inflation.
APRIL 21, 1933
Times are again exciting. Everybody is talking inflation and the stock market is booming. Hectic crowds fill brokers’ offices. U.S. is definitely off the gold standard both internationally and at home. The President asks wartime powers to inflate the currency:1. By issuing $3 billion new currency
2. Lower gold content by international agreement
3. Take up to 100 million in silver because of war debts and issue new currency against it. The matter is being debated in Congress. The Democratic majority support and the Republican minority oppose. Personally I am with the Republican minority.
APRIL 22, 1933
It now seems that the “inflation bill” asked by the President is much broader than first anticipated. It really authorizes him to use almost every form of inflation. If he decided to use his full authority he could issue about $20 billion new currency (three times the present amount) as follows:1. $3 billion thru purchase of U.S. Bonds by Federal Reserve and issue of new currency against them.
2. $3 billion in new greenbacks as authorized.
3. Cut gold content in half and issue $6 billion in currency against this additional gold.
4. $100 million in silver certificates.
5. The government has received almost $2 billion additional gold since the new law was passed penalizing gold hoarding. If gold content of dollar is lowered they could legally issue about $8 billion new currency against this new gold.
Everything depends on the President. It is a terrific responsibility.
CHAPTER 4
APRIL 26, 1933-DECEMBER 28, 1933
“The Depression has been broken.”
EDITOR’S NOTE
In June 1933 Congress passed one of the centerpieces of the New Deal legislation, the National Industrial Recovery Act. This law profoundly changed the way business and work were conducted in America. It organized businesses into industries that would volunteer to adhere to codes designed to eliminate unfair competitive practices and to standardize wages paid and hours worked. In return for this cooperation, industries were exempt from antitrust provisions. Consumers were then asked to do business only with companies that adhered to the National Recovery Act (NRA) policies, as signified by a blue eagle logo. The act also, as Roth notes, granted for the first time the permanent right of American workers to organize into labor unions. As a result, union membership expanded dramatically—it tripled over the course of the 1930s—but strikes also became more frequent as unions began to assert their power. Many industries vital to the region around Youngstown—autos, coal, and steel—were adamantly opposed to unions in their plants. Roth notes in particular a series of violent coal miner strikes in Pennsylvania that preceded that industry’s acceptance of an NRA code.
In fairly short order, it became clear that the NRA was too sweeping, and government enforcement too weak, for the NRA to make any sustained improvement in the overall economy. Roth himself was skeptical of the NRA from the very beginning yet, in what is clearly a transforming moment in his life, agrees to give multiple speeches on its behalf, all around the Youngstown area. It was, he wrote, “the only patriotic thing to do.” Roth’s diary from mid-1933 is filled with indications (including rising stock prices and increased steel production) that the worst of the Depression had ended. And indeed, after forty-three punishing months, the U.S. economy did stop contracting in March 1933, but the impact for nearly all Americans was minimal and the NRA—much of which would be struck down in 1935 as unconstitutional—did not live up to the administration’s predictions.
Another critical aspect of Roosevelt’s economic policy—and one that vexed Roth for years—was the desire to inflate the currency. This was in large part an attempt to revive the depressed commodities markets, which were particularly hurting American farmers. In order to achieve this, Roosevelt by early 1933 saw the need to take the U.S. dollar off the gold standard, on which it had operated since 1900; as Roth notes in earlier entries, many major global economies—including the U.K. and much of western Europe—had already taken this step. Many in Congress favored a policy of bimetalism, which would have fixed the value of the dollar at a certain weight of gold and a certain weight of silver, a policy Roosevelt opposed. The Emergency Banking Act of 1933, which passed in March and allowed 90 percent of the banks to reopen by June, temporarily took the dollar off the gold standard. A later act of Congress—which Roth refers to as the “inflation bill”—allowed the president to revalue the dollar-gold ratio from $20.67 an ounce to $30 an ounce.
APRIL 26, 1933
Excitement about inflation is dying down. Better public opinion seems to be veering against inflation now. It is beginning to be realized that only the speculator will profit and the consumer will lose. Already food prices have gone up although there is no reason for it except speculation. Corporation reports for 1st quarter of 1933 are worst of the whole depression.
APRIL 27, 1933
Banking troubles begin again. The biggest bank in Cleveland—The Cleveland Trust—has a record run affecting its 54 branches. Caused by rumors. In midst of run Mr. Creech, the president, stands on desk in lobby and announces the bank will remain open until 5 P.M. and all depositors will be paid in full without question. The Federal Reserve announces full support.
Bank depositors, holders of liberty bonds and other high grade bonds are just beginning to waken to dangers of inflation. They ask where they can put their money with safety. There appears to be no answer to this as long as the dollar can be tampered with.
The inflation bill is being bitterly contested in Congress. All kinds of amendments are being tacked on by special groups. The latest involve the free coinage of silver at a rate to be fixed by the President and also payment in full of the soldiers bonus with printing press money. Shades of Grover Cleveland and William Jennings Bryan. It looks like the greenback era all over again.
In the meanwhile business is stagnant and all we do is talk about money. There is none of it in sight.
One of the woman clerks at McKelveys says she works on a commission basis of 4% of sales. One day last week she earned 8¢ for the entire day.
Chain dress shops in town are selling sweat-shop products at ridiculously low prices.
APRIL 30, 1933
A miniature “Shay’s Rebellion” is taking place in Iowa. Enraged farmers in one place fought 50 deputy sheriffs to prevent a foreclosure sale. In another place they pulled the Judge off the bench during the trial, tied a rope around his neck, abused him, threatened hanging. Finally removed his pants and left him on the highway. These places and several others are now under military control and prompt punishment will be meted out to the wrong-doers. The situation illustrates the attitude of farmers who are losing farms because of deflated dollars and corn selling at 10¢ a bushel. Yesterday we drove to Ravenna and along the road eggs were selling at 11¢ per dozen.
The enormous inflation bill was approved by the Senate yesterday and the stock market took another big spurt. The bill will probably pass the House today.
MAY 5, 1933
The inflation bill has been approved by both houses of Congress and now awaits the signature of the President. The mere prospect of inflation has caused considerable speculation in commodities which are bought and placed in storage for higher prices. Already prices of all commodities are up 15% and common stock prices have doubled and trebled. The consumer is the loser because wages do not go up and there are 20 men available for every job.
Yesterday Judge David Jenkins our local Judge gave a farmer a six month respite from a foreclose decree.
At a social gathering last night the greater part of the evening was devoted to a discussion of inflation and national affairs. Every person present—both men and women—had a pretty good understanding of the subject. In the past two years there has been an amazing change in American thought from cards and golf to national politics and public matters. Life has become simple. Women’s styles resemble the 1890s and even the bicycle is coming back into favor as a means of transportation.
Real estate is still a liability and a cause of vexation to the owner. Income is not enough to pay water and rent and taxes. Foreclosures are moving at a slower pace because of an aroused public opinion.
The National Surety Co.—a national insurance and casualty co.—went broke today. This is about the 10th of its kind this year.
MAY 19, 1933
General business improves both because of inflation talk and for natural causes. Steel operations have improved from 17% to 35%; stock market averages from 45 to 75; commodities have gone up about 25%. Everybody is waiting now for the conference in Europe which will try to iron out currency problems, tariffs, etc. Roosevelt continues to suggest plan after plan for the control of industry and labor by the government. No actual inflation in currency has yet taken place. Locally the situation is much the same except that steel mills are operating at 35%. Law practice shows no improvement but we are already paying more for food, etc.
MAY 24, 1933
Conditions continue to improve and sentiment grows stronger that the depression has been broken and we are on the way out. Steel mills running about 40% and for first time in 3 years are on the profit side. Many steel workers in Youngstown will tomorrow draw their first pay check in 3 years.
Investigations are the order of the day. The Senate is investigating private banking and in particular J. P. Morgan & Co. Mr. Morgan was on the witness stand all day yesterday and today. The evidence shows that his firm made loans to many men now prominent in public affairs.
First step is taken toward real inflation where Federal Reserve Bank starts today to buy back (with new money) $3 billion in government bonds. Also effort will be made to stabilize the dollar on foreign exchange at about 80¢.
The U.S. is being drawn more and more into European affairs and the present administration seems ready to abandon our policy of isolation. Personally and under present conditions I am opposed to this and believe that isolation is still our best policy. Europe is now again on the verge of war and I see no reason why we should inter-meddle with her quarrels.
After moving upward for a month since the inflation announcement, the stock market is hesitating. I believe it has over-discounted the possibilities.
MAY 29, 1933
Roosevelt asks Congress to repeal the Gold Standard Act of 1900. On the mere announcement of his request the stock market went up 10 points in the busiest Saturday of all time. As a matter of fact the U.S. has already refused to pay gold for currency, gov’t bonds and other obligations, so this merely legalizes what has already been done. It leaves paper currency, bonds, etc. without gold backing as the only legal money in U.S. and acceptable for all obligations including contracts, leases, etc. calling for gold. In so far as this new law affects old contracts and nullifies them, I believe it is unconstitutional. A lower court in N.Y. however holds it is constitutional and justified because of the emergency and because there is not enough gold in the world to meet the contract demand. In the meanwhile industry is still on the upgrade and optimism continues unchecked.
Gold mining stocks (like Homestake) have been the leaders in the market. Homestake went up 17 points on Saturday A.M. In past 60 days Sheet & Tube has gone from 6 to 30.
JUNE 1, 1933
In looking back over the 3 months since Roosevelt became President it seems that the U.S. has traveled a long way toward some form of socialism or managed economy.
1. The President has been given the powers of a dictator and Congress is a mere rubber stamp.
2. We are off gold standard and will probably have inflation and a managed economy.
3. The industrial control bill is very far-reaching. It puts the government in business so that wages, prices, quantity of production etc. will be managed and controlled.
4. The greatest power producing area in the U.S. (Muscle Shoals) will be owned and operated by the gov’t.
5. We are becoming “internationally minded” by promising to lower tariffs and participate in European wars of aggression.
All these things were once considered radical but in light of present conditions are being accepted calmly. Pres. Roosevelt’s advisers are a group of college professors called the “brain trust.”
Personally I am opposed to going off the gold standard, mixing in European affairs, lowering tariffs, etc. I think the day of reckoning will come when we will pay dearly for these experiments and then we will return to the gold standard, to a reasonable protective tariff, to individualism instead of collectivism and also obey George Washington’s advice to avoid foreign entanglements.
For the present Roosevelt with his new deal and upsetting of tradition is the man of the hour because for 2 months now prices and industry have been advancing. It will be for the future to determine whether his course was a wise one.
So far the gov’t has taken no action against gold hoarders. This is unfair to the citizens who turned in their gold because the gold dollar is now worth about $1.20 in currency. There is not yet however any domestic market for gold and the foreign exportation is still prohibited.
JUNE 6, 1933
For the first time in my recollection we have “sweat shops” in Youngstown. A government investigation is under way involving Moyer Manufacturing Co.; G.M. McKelvey Co.; and numerous dry cleaners and raincoat manufacturers. At Moyer’s the girls claim they work long hours on piece work and get about $2.75 a week. At McKelvey’s the girls worked at straight 4% commission and often did not make even car fare.
Stock market still on the upgrade. Average is 82. Sheet & Tube 31; Republic 15; U.S. Steel 52; Radio 9; Truscon 8.
I am afraid the opportunity to buy a fortune in stocks at about 10¢ on the dollar is past and so far I have been unable to take advantage of it.
It is my conclusion that the successful investor must cultivate the habit of “patience.” He must be able to hold his money and wait until it is really the time to buy. In this panic it meant waiting over 3 years until stocks were really at rock bottom and selling at less than 1/10 of their normal value. I suppose the real investor would then have the patience and courage to wait until normal times returned before selling. Patience to wait for the right moment—courage to buy or sell when that time arrives—and liquid capital—these are the 3 essentials as I see it now. When stocks reached their all-time low in July of 1932 (when Sheet & Tube sold at 6; Republic 1 1/2; Truscon 2; U.S. Steel 20, etc.) it would have taken plenty of courage to buy because receiverships and bankruptcies threatened the largest companies and most of the banks in the country were closed or refusing to permit withdrawals.
Steel mills are now operating at 63% as contrasted to 17% in March.
JUNE 7, 1933
In the face of opposition of almost the whole world Pres. Roosevelt refuses to stabilize the dollar and goes forward with his inflation plan of raising domestic prices. Briefly he says he will let the dollar fluctuate on foreign exchange until domestic prices are raised to a point where industry can show a profit and debts can be paid. Then he will stabilize the dollar at its then rate to foreign currencies.
Skepticism and doubt and criticism of his plan are becoming more outspoken daily. When U.S. went off gold standard we got some foreign trade with our depreciated money but we are fast losing this because of rising domestic prices and increasing foreign trade barriers.
JUNE 11, 1933
The stock market boom is completing 4 months of upward soaring without a halt. Stock averages are about 96. New brokerage offices are opening everywhere and the public is rushing in as they did in 1928. American dollar at 69¢ on foreign exchange. Steel mills are operating at 65%. Stock prices: Truscon 13; Sheet & Tube 32; U.S. Steel 65; Bethlehem 46; General Elec. 25; Penn. R.R. 43; Republic 2.
As far as professional men are concerned business continues steadily worse. People are using their new earnings to pay bills, buy food and in some cases automobiles. Sales of automobiles have doubled and trebled. The reiterated promise of Pres. Roosevelt that he will raise prices to the 1924 level is cited by brokers as a guarantee that stock prices will go up. Seems to me it is about time for a bad break.
