The Great Depression Read online

  Table of Contents

  Title Page

  PREFACE BY DANIEL B. ROTH

  Introduction

  CHAPTER 1 - JUNE 5, 1931-OCTOBER 17, 1931

  VOLUME I - PERSONAL NOTES ON THE PANIC OF 1929

  CHAPTER 2 - OCTOBER 20, 1931-NOVEMBER 11, 1932

  VOLUME II

  CHAPTER 3 - NOVEMBER 19, 1932-APRIL 22, 1933

  VOLUME III

  CHAPTER 4 - APRIL 26, 1933-DECEMBER 28, 1933

  CHAPTER 5 - JANUARY 10, 1934-NOVEMBER 6, 1936

  VOLUME V

  CHAPTER 6 - DECEMBER 4, 1936-SEPTEMBER 11, 1939

  CHAPTER 7 - SEPTEMBER 12, 1939-DECEMBER 31, 1941

  VOLUME VI

  FOR FURTHER READING

  Acknowledgements

  Copyright Page

  PREFACE BY DANIEL B. ROTH

  When I graduated from law school in 1956, I was fortunate to be able to join my dad, Benjamin Roth, in his Youngstown, Ohio, law practice. By that time he had been a lawyer for thirty-seven years, and following the end of the Depression, he had developed a substantial clientele as a sole practitioner. As a new lawyer, I had no clients of my own and therefore devoted all of my time to working with my father’s clients. That is when I first learned that he had maintained a detailed diary of financial issues throughout the 1930s.

  As my first assignment, Dad asked me to study the diary so that I could gain insight into the Depression mentality of his clients. He suggested that in order for me to represent them, I had to understand the traumas they had suffered during the Depression and the scars they still bore in the 1950s. I recall attending a meeting with an elderly client and a trust investment officer and listening to the client tell the officer that the only way he would transfer any of his assets into a trust would be if the bank would agree in writing to never invest any of his money in anything other than U.S. government bonds. (Subsequently, the client loosened that restriction, and the bank did very well by building a diversified, conservative portfolio.)

  My grandfather Samuel Roth had come to this country in 1877 and settled in Manhattan, where Dad was born in 1894. The family relocated to Youngstown, Ohio, in 1900, and Dad attended the local schools. He then earned his undergraduate and law degrees at what is now known as Case Western Reserve University in Cleveland, Ohio, where he helped pay his college expenses by playing the violin in the orchestra pits of the local silent movie theaters. While in law school, he met my mother, Marion Benjamin, a student at Oberlin College. Immediately following his graduation from law school, Dad was sworn in as a lieutenant in the U.S. Army and joined his three brothers on active duty during World War I. At the end of the war, which coincided with my mother’s graduation from Oberlin, my parents were married in Cleveland.

  In 1919 my folks settled in Youngstown, where my father opened his law office. A year later my sister, Connie, was born, followed five years later by the birth of my brother, Bob; I entered the family in September 1929 (thereby causing the entire stock market to crash, according to my parents!). I recall little before 1934, though I clearly remember that my parents constantly discussed money problems and “pinched” every penny. When I was six or seven years old, I fell and cut my forehead. As I lay on the sofa, bleeding badly, my mother phoned my father (yes, we had a phone) and asked whether we could afford to have a doctor come to the house (no, we had no car). My father called a doctor who was one of his clients. The doctor made the house call and patched me up—but then refused any payment because of my father’s having provided some legal services for him without charging a fee.

  ABOVE. Benjamin Roth gathers with his wife, Marion, and three children, daughter Connie and sons Daniel and Bob, in 1935.

  RIGHT. Dan Roth plays with his two cousins, Jim (left) and David (right) Elliott, and his dog, Puddles, in Youngstown, Ohio, in 1936.

  ABOVE. Benjamin Roth hosting Thanksgiving dinner with his family in 1937. Seated at the table (from left to right) are Benjamin’s sister-in-law, Roma Elliott; his brother, Morris Roth;, his daughter, Connie; Benjamin himself; his mother-in-law, Irene Benjamin; his father-in-law, Morris Benjamin; and his wife, Marion Roth.

  I have many fond memories of growing up in the 1930s, even as terrible as those years were. My mother taught piano lessons at home, and on most evenings our family would perform “concerts,” gathering around Mom’s piano with Dad playing the violin and we three children singing. On warm summer evenings, my parents would open the front door, and many of our neighbors would sit in our living room or on our front porch and join in the fun. Those were the days of simple pleasures; there was no need to spend money or to own a car. In retrospect, I realize that throughout their entire married life, my parents always lived within a short walk of the bus line, and even in his eighties my dad would leave his car in the garage and ride the bus to and from the office. When I first began to work with him, I offered to drive him downtown, but he refused, explaining that he enjoyed getting to know the other passengers, many of whom became his longtime friends.

  In 1937 Dad purchased a new car, his first since selling his old one in 1932; my sister, Connie, left for college; and the country entered into a second deep depression. I can clearly recall my parents discussing whether they would be able to afford to keep Connie in college (there were no student loans in those days), and they finally told her to take one semester at a time and they would do their best to keep her in school. Their “best” was good enough, and Connie received her teaching degree and ultimately became a highly respected teacher in Boardman, Ohio.

  As I read through this period in the diary, I am amazed by my father’s determination to learn as much as possible about economic issues. In fact, in spite of his financial hardships, he frequently writes about how grateful he is for the “post-graduate” education afforded him by the Depression. He often expresses his unquestioned belief in America and our capitalistic system as well as his conviction that conditions would ultimately improve with the result that we would be a stronger nation without changing to a communistic or socialistic society. Most of all, I gained tremendous respect for the strength and endurance displayed by both of my parents during those difficult years.

  Dad was not the type to lecture, though. He taught by example. By the time I was in my early teens, Youngstown’s steel industry was booming again, and racketeers were getting rich on illegal gambling. Dad and two other men decided to run for city council on a platform of cleaning up the rackets. All three were elected, and they succeeded in driving the illegal gambling out of town (the racketeers simply opened up a gambling resort just outside the city limits called the Jungle Inn, which was ultimately closed by state and federal officials). Immediately after he was elected to office, he received a number of “gifts,” including free passes to all of the movie theaters. I was thrilled with this and could hardly believe it when Dad promptly returned all of the “gifts” with polite thank-you notes. When I complained to him that we should keep the movie tickets, he simply explained that honesty and integrity are not matters of degree.

  My family survived the Depression and the war that followed. In 1943 Bob began his college education at Oberlin, but then joined a program with the U.S. Navy that resulted in his receiving his bachelor’s degree from Harvard. After serving as a naval officer, he earned his law degree from Columbia and became associated with a Manhattan law firm. By 1951 my parents’ lives had finally calmed down, and they were beginning to prosper. I had received my bachelor’s degree and was serving on active duty as an air force lieutenant during the Korean War when their lives fell apart again. I was called home on an emergency leave to attend my brother’s funeral. Even though more than fifty years h
ave passed, I can still remember my parents’ grief. It took years for my parents to put their lives back in order, only to then watch my sister, Connie, die at the age of fifty-three.

  How my parents coped with these tragedies is beyond my comprehension, but they did—and came out stronger than ever. Mom threw herself into club work and was elected president of every club she joined. She ultimately served as president of the General Federation of Women’s Clubs in the state of Ohio. When she died at the age of ninety-seven, there were still clubs bearing her name: the Marion B. Roth Club, a Youngstown-area organization, and a statewide club called the “Marionettes.”

  Dad’s therapy was to increase his workload. He continued practicing law until shortly before his death at the age of eighty-four. It was my great fortune to have been able to work side by side with him for more than twenty-eight years. He was my partner and mentor, and for that I am truly blessed. My parents never left Youngstown; it was their life.

  During the time I worked so closely with Dad, he frequently discussed his diary. He looked forward to his retirement, when he planned to edit and publish it. Needless to say, he never retired. In 1978 he gave me the diary, consisting of fourteen handwritten notebooks that included entries from 1931 to 1978 (this volume ends in 1941, as the U.S. entry into World War II finally marked the end of the Depression). He expressed the hope that I would someday fulfill his wish, and I am very proud now to do so.

  INTRODUCTION BY JAMES LEDBETTER

  As a business editor, it’s not often that I read copy that gives me chills. But then again, October 2008 was a chilling time. In a few turbulent weeks, the nation’s economic mood had turned from apprehension to alarm, and giants were dropping all around with an ominous thud. One of the oldest and most prominent Wall Street firms, Lehman Brothers, had declared bankruptcy. Fannie Mae and Freddie Mac had to be taken into government receivership. AIG, a massive insurance company that had been acting like a highly leveraged bank, was bought out by the U.S. government in order to keep it from going under. The stock market, predictably but nonetheless cataclysmically, fell into a tailspin. In a six-week period from September 12 to October 27, the Dow Jones Industrial Average lost more than 28 percent of its value, and it seemed entirely possible that it could fall much further.

  During this time I received an e-mail from a Bill Roth at Citigroup, who told me that his grandfather Benjamin had kept a diary during the 1930s. He asked whether my fledgling Web site, The Big Money, online for barely a month, would be interested in publishing parts of the diary, and sent me some sample entries. My eye was drawn to this entry, dated July 30, 1931:Magazines and newspapers are full of articles telling people to buy stocks, real estate etc. at present bargain prices. They say that times are sure to get better and that many big fortunes have been built this way. The trouble is that nobody has any money.

  This was, of course, exactly what was being said in the media as I was reading it seventy-seven years later.

  Another entry, dated August 9, 1931, reads:Professional men have been hard hit by the depression. This is particularly true of doctors and dentists. Their overhead is high and collections are impossible. One doctor smoothed a dollar bill out on his desk the other day and said that was all the money he had taken in for a week.

  I couldn’t stop my mind from jumping to a place I didn’t want it to go: Could we be headed for another Great Depression? Immediately, my defenses kicked in: No matter how many leading financial institutions were failing, we weren’t yet even in a declared recession. The government had a massive, unprecedented plan to save the banks. We had the Federal Deposit Insurance Corporation (FDIC) and a truly globalized economy, both powerful cushions against what happened in the early thirties. It couldn’t get that bad again—could it?

  Yet the more I read the diary, the more I realized that no one living in the 1930s had known for certain that they were headed into a depression, either, until they were in its midst. And even then, they constantly scoured the landscape for signs of recovery, as we are doing today.

  Benjamin Roth’s diary is a remarkable document, spanning fourteen handwritten volumes over five decades. In the early part of Roth’s professional career—the years before he began keeping this journal—his law practice grew as part of Youngstown’s historic boom. In 1900 the population of Youngstown was 45,000; by 1930 it was 170,000. That explosive growth was almost entirely the result of the rising steel industry. Youngstown possessed that magical combination necessary to produce steel: proximity to coal, limestone, and iron ore, plus capital, from the success of the iron industry in the late nineteenth century. Like the discovery of gold in California a half century before, the production of steel in Youngstown created a genuine boomtown, with ripple effects felt throughout the nation’s economy. At the beginning of the twentieth century, the steel industry in and around Youngstown was still embryonic; by 1927 it surpassed Pittsburgh as America’s largest steel-producing region.

  A burgeoning town—with the need for increased housing and commercial activity—provided a young lawyer with plenty of business. While steelworkers themselves did not make high salaries, the managers of companies like Republic Steel (founded in 1899 and eventually the third-largest steel producer in America), Youngstown Sheet & Tube (founded in 1900, and for Roth the very barometer of local economic conditions), and Truscon Steel (a steel-door manufacturer that was purchased by Republic Steel but continued to do business under the name) prospered, and there was plenty of work to be done in property deeds, insurance, and similar commercial law work.

  But not long after the stock market crash of October 1929, much of the region’s economic activity went into reverse, a process that Roth set out to understand as a witness at the center of the storm. To this day, historians, journalists, and economists continue to debate the exact forces that caused the worst economic downturn in American history. Like many of his contemporaries, Roth considered the 1929 stock market crash as the start of the Depression. Hordes of people who invested their life savings in the market were wiped out during the punishing “black days” of late October 1929. Stock values had begun to soften in September of that year, but on Thursday, October 24, mass selling caused the prices of the stocks to drop dramatically as brokers couldn’t find buyers to keep the stock value afloat. Investors’ panic continued on Monday, October 28. Millions more shares were traded, and stock prices continued to plummet. Then on Tuesday, October 29, the market completely collapsed: More than sixteen million shares traded and fifteen billion dollars in assets were lost. By mid-November the market had lost more than a third of its value.

  While the gut-wrenching drama that played out in the stock market those October days made an indelible mark on Roth and many Americans, only about 2.5 percent of Americans actually owned stocks in 1929. Many subsequent historians see the crash as more of a catalyst for the Depression than its cause. Still, as economist Joseph Schumpeter put it, Americans of all walks of life “felt that the ground under their feet was giving way.” And the crash closed a frenetic era in American economic history, a period in which the stock market became the get-rich equivalent of the previous century’s gold rush. The notion that anyone with just fifteen dollars a week could become a millionaire by “playing the market on margin” pervaded American culture during the boom of the 1920s. This helps explain why Roth—who did not own stocks in the period covered by this diary—paid such close attention to the market. (In fact, we have cut many entries where closing stock prices were included with no context or commentary.) The seemingly endless rise in the stock market in the 1920s was exhilarating: Radio, newspapers, and even women’s magazines fostered and capitalized on this fascination by running stories daily on the market and ways to get rich on stock “tips.” As Roth ruefully noted later, many amateur investors had little to no knowledge about investment fundamentals, or even the specific health of the companies in which they invested; they were speculators, through and through. As the saying goes, they got theirs.

&nb
sp; While the Great Crash didn’t cause instant mass unemployment or suddenly halt production lines, the events of October 1929 did expose structural problems in the 1920s boom economy. And the response was rapid; within a few months, new car registrations fell by almost a quarter from the September figure. As families, earning on average just two thousand dollars a year, cut back on their spending, manufacturers, stuck with overstock and expensive overhead, began to lay off workers. As the unemployed struggled with bills and consumed even less, more companies cut back on workers or even closed up shop. The unemployment rate skyrocketed. In 1929 the nonagricultural sector was about 1.5 million, or 3.2 percent unemployed. By 1930 it was 8.7 percent, or about 4 million. By 1931, when Roth started writing down his thoughts on the events around him, the jobless had nearly doubled to 15.9 percent, or 8 million.

  Thousands of panicked Wall Street investors gathered on the streets outside the New York Exchange following the devastatingstock market collapse of 1929 that took place over the course of three days: Black Thursday, October 24; Black Monday,October 28; and Black Tuesday, October 29. Benjamin Roth pasted a clipping of this exact newspaper photo in his diary. (© Bettmann/CORBIS)