Business: Market Lesson

Experience, said Oscar Wilde, is the name men give to their mistakes. Although there could be no general agreement as to whether or not the Stockmarket crash of Oct. 23 et seq. was a mistake, last week found most economists and many a businessman looking for the "lesson."

The Bull Market of 1924-29 was sired by the Golden Industrial Age of the corresponding period. It was easy, after the Market had broken, to denounce speculators as fools and speculation as vicious. Yet a few die-hards (such as Yale's Irving Fisher) maintained, even after the Crash, that quotations had never become so weirdly out of touch with reality as prophets-after-the-event were quick to label them. Given a profound conviction that the future of U. S. industry was boundless, that there was no limit to the potential value of U. S. securities, where could the line be drawn between farsightedness and folly? Speculation is the shadow of industry thrown forward on the wall of the future. It had been thrown a long way forward during the late Bull Market, its size swollen, its perspective distorted. But though it was a magnified picture, it was not an imaginary picture. Behind the shadow of Speculation there was still the substance of Prosperity.

October 23. Why then, did a Market which had broken on Oct. 23 demonstrate with a continued crash on Oct. 24 that the end of the Great Bull Market had really arrived? Professor Fisher may stand a discredited prophet, yet apt appeared his analogy between the break on the market and a run on a bank. The Bank was U. S. Industry. Assets of the bank were the real assets of U. S. Industry. Stocks were the paper money which the bank had issued. Now all banks, even the Federal Reserve System, issue more money in paper than they have gold in their vaults. Every bank would be broken if all its depositors simultaneously attempted to exchange paper for gold. And, unhappily, the Industrial Bank had held itself to no fair ratio between cash and paper. Auburn at 514—Johns Manville at 242— Radio at 114—here were bank-branches with a topheavy proportion of notes to cash. Even the biggest and most secure branches, such as General Electric, American Telephone &Telegraph, United States Steel, constituted inflated currency when their securities stood at 403, 310 and 261 respectively. So long as the depositors did not begin to brood over this inflation, no harm was done. But so soon as the lines started forming at the paying teller's window, the Crash was inevitably swift.

Oct. 23-Nov. 12. Why the crash came on Oct. 23, 1929, is as mysterious (and as unimportant) as why the World War chanced to begin on Aug. 4, 1914. If some trace the War no further than to an archducal assassination, then others might trace the Crash to a variety of such moments as that when Goldman Sachs terminated the syndicate on their Blue Ridge investment trust. Vital point is the undermining of popular confidence that ended in the crash.