social security: october1979

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Stock prices tumbled 50 years ago this month, and theRoaring Twenties came to an abrupt end. Out of the Depres-on that followed came the Social Security Act and otheraws to increase the Federal role in managing the economy.

THE CRASH

October 1979

Confusion reigns on the Stock Market floor in 1929.

W

HILE IT’S NOT an occasion that anyone would want to celebrate, the

50th anniversary of the stock market crash occurs this month. Few SSAemployees were old enough (most of us weren’t even born!) to remember

that fateful day in 1929; But most aged Americans now drawing social securitybenefits remember the Crash. They remember even more clearly the Great Depres-sion that followed.

The Depression caused record high unemployment, tremendous hardships, andeven hunger for many millions of people. But in one of history’s ironies, the Crash

and the Depression were indirectly responsible for passage of the Social SecurityAct in 1935.

Widespread economic and social insecurity brought about the program whichprovides security for nearly all families when workers retire, become disabled ordie. No doubt the social security program would have come into existence eventu-

ally in any case, but the terrible conditions of the Depression hastened its birth.Let’s look back at the period before the Crash-the 1920s, also called the

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azz Age, For many, it was a de-ghtful decade, coming after theoodshed and sacrifice of World

War I and before the hard times of e 1930s.

What wcrc the Roaring Twentieske? They were a time of social re-olt, of changing moral codes, of hifting crazes, and of avid heroorship.In every generation, many par-

nts and grandparents think that theouth are going to the dogs. Thisas particularly true in the twenties

a time of rapid social change.Young women became flappers byhe droves. They discarded the long,hick dresses of their mothers, andut on thin ones with short sleevesnd hemlines up to the knee.

“Some of the wilder young thingsolled their stockings below theirnees, revealing to the shocked eyesf virtue a fleeting glance of shin-ones and kneecaps,” related Fred-rick Lewis Allen in his 193 1 book,

Only Yesterday, An Informal His-ory of the 1920s. Young womenven went so far as to abandon theirorsets! Although Allen wrote rightfter the decade’s end, his witty, in-ormal book has held up remarkably

well.

Bobbed hairstyles became veryopular. Sales of perfume soared,

with 2,500 brands on the market.otton underwear gave way increas-

ngly to silk and rayon, and petti-oats vanished. Allen commentedhat “no longer were silk stockingshe mark of the rich.” He quoted a

workingman’s wife as saying, “Noirl can wear cotton stockings toigh school. Even in winter myhildren wear silk stockings. . . .”

Even “nice” girls were smoking

igarettes and wearing rouge andpstick-previously the mark of afallen” woman. They began takingnchaperoned rides in autos withheir boyfriends. For many courtingouples, the auto took the sofa outf the parlor, put it on wheels, and

moved it onto secluded lanes.Speaking of autos, America’s love

ffair with the car soared throughhe twenties. Passenger cars in use

nearly quadrupled from 6 million in

919 to 23 million in 1929.

When Ford’s eagerly awaited

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Model A was unveiled in December1927, a million frenzied car-wor-shippers tried to jam into the com-pany’s headquarters in New York City to catch a glimpse of it.Throngs also flocked to Ford show-rooms in Detroit and other cities.Mounted police were called out to

maintain order.Controversial movies, books, and

new magazines such as True Con-

fessions helped to create, and thencapitalize upon, the new morality.They were condemned by some re-ligious leaders as works of the devil.

Crazes came and went. The oldChinese game of mah jongg wassimplified, and it swept the country.Crossword puzzles came into vogue.Goldfish swallowing for college menwas “in” for a while. Dances likethe Charleston and the Black Bot-tom became the rage.

Another craze was started by aFrenchman, Emil CouC, after hecame to this country in 1923. He

Flagpole sitting was just one of the manyfleeting crazes of the 1920s.

suddenly became famous and set upCOLIC Institutes all across the U.S.His formula for self-improvement,“Day by day in every way, I am --getting better and better,” was re-peated over and over by millions of

followers. This chant could becalled the theme of the decade.

Joh n Burnham, in an essay inChange and Continuity in Twentieth

Ce n t ur y A m e r i c a , T he 1920’ s ,stated that “One of the strikingdevelopments of the 1920s was theculmination on a mass scale of pub-lic interest in personal, introspectiveaccounts of private experiences.”

Mass interest in mental improve-ment, physical culture, psychology,popular psychoanalysis, letters tothe lovelorn, etc., was part of a

general cult of the self. New socialnorms produced and justified self-

centered attitudes and self-indulgentbehavior.

Radio was another mania in thetwenties. Sales of radios increased1400 percent from 1922 to 1929.The crooning of the old charmer,Rudy Vallee, captivated millions of avid listeners.

Radio’s wide audience helpedspark a huge interest in sports andin their heroes. The great and flam-

boyant home run king, Babe Ruth,made baseball the national pastime.There was hardly a youngster inAmerica who didn’t keep track of how many homers The Babe hit.

Sports super heroes also includedfootball’s Red Grange (the Gallop-ing Ghost), boxing’s Jack Dempseyand Gene Tunney, and golf’s BobbyJones.

But the biggest hero of the twen-ties was not to be found in sports.He was a loner-the Lone Eagle.

When he made the first solo trans-Atlantic flight to Paris in May 1927,Charles Lindbergh became theworld’s idol. America went wildwith rel ief and joy that he hadlanded safely.

President Calvin Coolidge re-flected the national mood by send-ing a navy cruiser to bring Lindyand his “Spirit of St. Louis” back home. No Caesar returning to Romeever received such a triumphal wel-come. The public welcome withticker-tape parade in New York

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warfed any previous celebration.lso awaiting him were 55,000 tele-rams, one of which had 17,500ames of well-wishers.Not all was fun, games, and glory

uring the decade. There were morerious events like the Sacco-Van-

etti case. Sacco and Vanzetti, radi-

al immigrants from Italy, were triedor murder in Boston. They wereonvicted and their case became annternational cause celebre.

Although new evidence was un-overed after the trial which madeheir guilt seem doubtful, properostonian Judge Webster Thayerentenced the two to death. Theyere sent to the electric chair inugust 1927, amid wide protests.Prohibition became the law of

he land after the 18th amendmentas ratified in 1919. But the prob-m lay in how to enforce it. Mil-ons of Americans ignored the lawnd obtained liquor illegally.

The supply came from twoources. Moonshiners made largemounts of illicit alcohol in stillsom the Tennessee hills to Nework apartments. And smugglersipped boatloads of foreign boozecross the 18,700 miles of coastlinesnd land borders of the U.S. Pro-

bition agents to prevent such il-gal activities were few and far

etween.Organized crime soon began to

ominate the rum-running trade. Alapone and gang warfare in Chi-ago and elsewhere made nationaleadlines. Speakeasies were easy tond in any American city, and cor-

uption was rampant.

Frederick Lewis Allen quotes aolumn in the New York World thatpitomized the confused attitude of any Americans toward Prohibi-on.Prohibition is an awful flop.

We like it.

can’t stop what it’s meant to stop.

We like it.

’s left a trail of graft and slime,’s filled our land with vice and

crime,

don’t prohibit worth a dime,

Nevertheless we’re for it”The “wets” and the “drys” de-

ated Prohibition. Each side blamedhe other for the disrespect for law

ctober 1979

engendered by the widespread flout-ing of Prohibition. They marshaledtheir own statistics and experts toprove their side was right. In theend, the wets won the political de-bate, and Prohibition was repealedin 1933.

The mass-produced auto made it

easy for people to flock to vacationlands like the year-round sun andsand of Florida. Land sales therebegan to boom, and by 1925 theboom was in full bloom. Developerschristened Miami the “WonderCity,” the “Fair White Goddess of

Cities,” and the “World’s Play-ground.” Ft. Lauderdale becamethe “Tropical Wonderland.” Someland fortunes were made in just afew months.

Inside lots sold for up to $20,000,and seashore lots-even those miles

TOP: C har les L indbergh

with his “Spirit of St. Louis”after his famous solo flight

across the Atlantic. ABOVE:The love a f f a i r w i t h t he

automobile filled the lives ofmillions during the ‘Roaring

20s.’ LEFT: Flappers some-times concealed flasks intheir garters to evade Pro-

hibition.

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and miles from Miami-skyrock-eted to as high as $75,000. Manyunknowing investors bought lotssight unseen from shady promotersand later found their land to be

worthless, under 10 feet of water orn a swamp.

The bubble began to burst in the

summer of 1926 when the sharpoperators pulled out. People startedto default on their payments. Thenn September, a devastating hurri-

cane hit the Gold Coast of Florida.Over 400 people died and 50,000were left homeless. The storm dc-stroyed what remained of the Flor-da Land Boom.

New subdivisions became ghosttowns, building stopped, and manybanks failed. What transpired insouth Florida in 1926 might have

been a warning to the Nation thathard times were coming.

But in the rest of the country-

from New York City to the GoldenGate-the economic boom went on.The “bulls” were in the saddle onWall Street, with stock market pricessoaring to record heights.

Speculative fever was intense inthe late 1920s. Whenever financialconfidence started to falter, Presi-dent Coolidge and Treasury Secre-

tary Mellon made reassuring re-marks andbtocks spurted again.

Few people listened to those ob-servers who forecast an end to goodtimes. They were derided as proph-ets of gloom and doom. Even ele-vator operators a nd n e ws s ta ndvendors were getting and passing on“inside” tips on hot stocks. The BigBull Market became a nationalmania.

An article in Ladies Home Jour-

na! entitled “Everybody Ought to be

Rich” fitted the prevailing mood.The gateway to fortune seemed openwide. People thought the boomwould last forever. They looked for-ward to the day when they could sellsome stocks at huge profit, buy amansion and a fleet of cars, and lollon the beach.

Alas, this dream was never to be.The stock market peaked in Sep-tember 1929. Stock prices began towaver and then fall in October. WallStreet spokesmen soothingly assured

anxious investors that all would be

well and that the bull market wouldsoon resume.

But on Thursday, October 24,1929, the Crash came with a ven-geance. As prices tumbled, there wasa frantic stampede to get out fromunder. Wall Street was in chaos-no one knew just what was happen-

ing. The stock ticker was late andunreliable.

Many millionaires with highlymargined stock holdings were wipedout in that 1 day. Some committedsuicide. Billions of dollars in paperprofits vanished without a trace.

Millions of American familieslost their life savings-in the Crashor later as other investments andsavings also were wiped out. TheRoaring Twenties had come to anabrupt end,

Within 2 1/2 years of the Crash,over 90 percent of all stock marketvalues at their 1929 peak were gone.Tens of thousands of businessesfailed and over 8,000 banks becameinsolvent by 1935.

What had caused the Crash? Themain reason was excessive specula-tion. People were able to buy stockson as much as 90 percent margin(which meant that they only had topay 10 percent of the stock’s value).

The market was also subject to agreat deal of insider manipulation,pyramid schemes, etc., which addedto the instability of the market.

Another reason for the Crash wasthe psychology of the market. Thebull market had prospered in wilddreams, while the bear market thatfollowed was consumed by its ownnightmares. Selling led to more sell-ing, and the process fed upon itself.

The causes of the Great Depres-sion of the 1930s included the wipe-

out of individual savings and busi-ness profits in the Crash, the rapiddrop in production that followed,and the banking crisis mentionedabove.

Until 1933, the Federal Govern-ment seemed unable to do anythingeffective to prevent or alleviate theDepression. Presidential pronounce-ments-so effective in the headyCoolidge area-didn’t work any-more.

For example, in May 1930 Presi-

dent Herbert Hoover reassured the

Nation that “we have now passedthe worst and with continued unityof effort we shall rapidly recover.”But there was no recovery, and thedownturn only grew worse.

President Franklin Roosevelt,after his inauguration in March1933, took a number of dramatic

steps to restore confidence. Underhis Administration, the Congresspassed many laws to increase theFederal role in managing the na-tional economy.

One of the most important of these was the Social Security Actin 1935. It established the nationalsocial security program that todayplays such a vital role in Americanlife.

Most economists believe that wewill never have another Great De-

pression. Paul Samuelson, in hisbasic text, Economics, states that“economic science knows how touse monetary and fiscal policy tokeep any recession that breaks outfrom snowballing into a lastingchronic slump.”

Federal regulatory agencies suchas the Securit ies and ExchangeCommission (SEC), the FederalTrade Commission (FTC), and theFederal Deposit Insurance Corpora-

tion (FDIC) have the authority tocombat excessive speculation andunsound business and banking prac-tices. The FDIC also assures saversthat they will get their money back if federally regulated financial insti-tutions fail.

Samuelson and other economistscite certain built-in stabilizers in theeconomy as preventing any depres-sion. These stabilizers are Govern-ment payments that increase duringrecessions when unemployment in-

creases.Social security, welfare payments,

an d unemployment com pen sat ionare the three main automatic sta-bilizers. Nonautomatic stabilizers-that is, those requiring legislativeaction-such as lowered taxes andpublic works projects could also beused to prevent a recession fromturning into a depression.

We may have economic crises inthe future, but another Great De-pression is as unlikely as another

era like the Roaring Twenties. ci

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social security: october1979

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