City of Detroit $20 scrip, 1933.
in 1921 to 3% by 1924, making for easier
credit. The automobile industry was surg-
ing. Between 1921 and 1923, factory sales
of passenger cars more than doubled, to
3.6 million. The popular new mass enter-
tainments of radio and movies—talkies!—
were intoxicating. A sexual revolution was
underway. And, speaking of intoxicating,
notwithstanding Prohibition, liquid hap-
piness flowed from every flapper’s flask
and speakeasy.
But problems lurked beneath the
surface. From 1920 to 1921, farm prices
dropped by half. Through the 1920s, a third
of wage earners earned less than $2,000 a
year—or $27,000 in today’s money. That
would qualify today for a family of three as
poverty level. Today the national poverty
rate is about 12%. So in the 1920s almost
three times more Americans than today
lived at or below the poverty line.
Even before the crash, two banks a day
were failing. And, of course, there was as
yet almost no safety net, no federal deposit
insurance, Social Security, unemployment
insurance, food stamps or Medicare.
But it was increasingly easy to invest.
Brokers opened margin accounts with as
little as 10% cash down—which was great
as long as stocks kept rising. The Fed was
no help; it actually made the borrowing
easier. In August 1927 it lowered the dis-
count rate from 4 to 3.5%, making credit
even more available.
The renowned financial writer John
Brooks said it was like “the police issuing
guns to people on the street in a time of
threatened riot.” In 1927 alone, brokers’
loans to customers rose from what would
be, in today’s dollars, $47 billion to $65
billion.
But not everywhere. While the eastern
seaboard surfed the giddy wave, farmers
and other suffering rural folk in the heart-
land looked on disapprovingly.
In 1928, the Fed finally hit the brakes,
raising the discount rate to 5%, but it was
too little, too late. With spectacular stock
fortunes to be made, who cared about a
slight rise in the cost of borrowing? Bank-
ers loved it, borrowing from the Fed at 5%
and loaning to speculators at 12%!
Brooks put it well: bankers made money
by existing. The Fed pleaded with bankers
not to lend funds for speculation “as far
as possible.” But any attempt to have the
government step in to halt the madness
was denounced as interference.
By the summer of 1929, Wall Street
was mayhem. Vacations were on hold
as bankers and customers stayed glued
to the tickertape. Barbers and chauffeurs
eavesdropped for stock tips and feverishly
passed them on.
And then, in early September 1929,
a broker by the name of Roger Babson
in Wellesley, Massachusetts, spooked the
market on a slow news day by mentioning
12 FINANCIAL HISTORY | Fall 2019 | www.MoAF.org
in a luncheon talk what he had said many
times before: “Sooner or later a crash is
coming and it may be terrific.” A few
weeks later, a big British financier, Clar-
ence Hatry, went bust. He later went to
prison for fraud. And in October regula-
tors blocked Boston Edison from splitting
its stock four to one and put the utility
under a cloud by announcing an investi-
gation. None of these things by themselves
seemed causative, but they cast a pall,
shaking confidence in the market.
Monday, October 21, 1929 was a very
bad down day, with the third greatest
sales in history. The ticker lagged way
behind, but stocks finally rallied, recover-
ing some ground. Wednesday, October
23, was another bad day. On Thursday,
October 24, it turned into a rout. Amid the
rising alarm, Wall Street titans convened
an emergency meeting. Morgan’s senior
partner, Thomas Lamont, conceded,
“There has been a little distress selling on
the Stock Exchange” which he attributed
to “a technical condition of the market.”
President Hoover said famously, “The fun-
damental business of the country, that is
production and distribution of commodi-
ties, is on a sound and prosperous basis.”
Financier Richard Whitney made a dra-
matic gesture, appearing on the New York
Stock Exchange floor with a high bid, over
the asking price, for US Steel. Whitney
was hailed as a savior, but he later went