Nov 3, 2008
On Thursday, October 24, 1929, just 79 years ago, the stock market in New York crashed. It led to the most profound world economic crisis that capitalism has ever known.
A deep economic crisis had broken out in the U.S. at the end of World War I. In 1920-21, national income fell by 27%, with a brutal increase in unemployment. Eventually the economy started to recover, based on a general expansion of credit. By 1929, national income had not only recovered, it had greatly surpassed its previous high.
The media said that everyone was getting rich; in reality only a few hundred thousand people did. And this situation rested on the same contradictions as before: production grew more rapidly than did the income of the population. But profits increased rapidly, which in turn led to greater dividends paid to stockholders. They took this money and put it back into the stock market, driving up stock prices, while speculating on rising profits in the future. Soon the increase in stock prices began to feed off itself, fueling speculation that became increasingly distant from economic reality. This unbridled speculation remained unsurpassed until today’s financial escapades.
As the capitalists began to worry about how much more they could make from the “ordinary” exploitation of the workers, they turned to even more financial speculation. The stock exchange soared, offering “financial products” increasingly distant from the real value of the companies they were supposedly based on. In 1929, like today, everything depended on the belief that stock prices would inevitably go up, rising forever. Investors bought everything, but on credit, borrowing at 6%, 7%, even 12% interest, while they expected stock prices to increase 50%, even 100% or more.
Everyone jumped in, from the well-to-do middle classes to the big bourgeoisie. Business created credit companies specially devoted to this speculation. Well-known banks led the charge, banks like Goldman Sachs and City Bank, who have played the same role in recent years. Big companies placed their funds in this market, for it brought in more return than the normal production of goods.
Money for the stock market flowed into the U.S. from all over Europe. President Calvin Coolidge, turning over power to Herbert Hoover in March of 1929, promised that this flood of money would continue forever. Speculative fever reached its peak in the summer of 1929, but for several months the demand for industrial products had been showing signs of weakness.
The feverish and “irresistible” increase in stock prices, on which all this speculation rested, was about to be transformed into a general collapse.
Thursday, October 24 gave the signal with a drop in stock prices, and with 13 million shares sold – double the volume of any previous day. The drop in stock prices that day, according to the different indexes used at the time, was “only” 11 to 13%. So far no one expected a collapse, for there had already been temporary lows in stock prices. Furthermore, this drop was followed by two days of increased prices.
But on October 29, the drop was still more brutal. This time 16 million shares were sold, and that ignited a general panic. By January 1, 1930, a “strong” industrial stock like Dupont had fallen 90% and Chrysler had fallen 96%. The funds established by the banks and other rich speculators rapidly attained the value of ... zero. Failures increased among banks which owned rotten stocks, and the banks became insolvent. This was the case in all sectors of the economy.
The most profound economic crisis in the history of capitalism developed in the U.S., and ricocheted to the entire world. Gradually the whole of the U.S. economy – the richest in the world, producing 40% of the world’s wealth – fell into a general depression, with certain sectors, like steel, functioning at only a tenth of their capacity.
In 1932, national income was half as high as it had been in 1929. The number of the unemployed climbed to some 20 million, depending on the source. More than 25% of the active population had no job at all, while more than 60% of those who continued at work had only part-time work, at starvation wages. The bosses cut wages everywhere in an arbitrary manner.
The U.S. working class and the small farmers, whom the bosses forced to pay the cost of the crisis, knew misery and even hunger. All Europe was hit. This was particularly the case with Germany, whose economy had suffered for years from “war reparations,” which because it lost World War I, it had been forced to pay to France. Germany had been kept alive only by infusions of U.S. capital, which now suddenly dried up.
Contrary to the legend spread by Democrats and union officials, the crisis was not overcome by Roosevelt and the Democratic Party. By way of example, auto production in the U.S. did not obtain its pre-crisis level until 1953. The stock exchange did not reach its 1929 level until 1954.
In the U.S., industry did not really pick up until war production began in 1941. The famous New Deal, the political intervention of the U.S. State, gave a part of the unemployed some money to survive on, but in no way did it put an end to the economic crisis. Above all, it permitted the biggest companies to get rich, while buying the collaboration of the union bureaucracy.
In Europe, where the means of the bourgeoisie were more limited, the crisis led to fascist dictatorship in Germany, which broke the working class. And all that finally led to World War II for the division of the world between the different imperialist powers, through which the U.S. went on to impose its economic domination over the whole planet.
The 1929 crisis, with its consequences, revealed the profound rottenness of the capitalist system, which was incapable of developing the productive forces that its technology made possible. The economy was paralyzed by private ownership of the means of production.
It is true that capitalism finally survived. This is the only argument of its defenders. But at what price? This survival was at the price of economic anarchy and general waste for decades, with the misery that accompanied them, immense destruction, tens of millions dead and the barbarism of war.
Revolutionary communists ever since Karl Marx have always insisted on the necessity of social revolution – resting on the conscious will of millions of workers – to give birth to another society. The working class, in the years following the crash, reacted with vigor, in the U.S. and in Europe – particularly in France and above all in Spain, where it knocked at the gates of power. But without a revolutionary leadership ready to lead the struggle all the way to get rid of the capitalist system, the fights of the working class were led astray and betrayed by Social-Democratic and Stalinist leaders.
No one can say what will happen in the current crisis, but the 1929 crisis showed how far the economic rulers and their political servants were ready to go to assure the survival of their system. Why do we once more have to go through misery, “blood and tears”? The working class and the whole of society has every interest in preventing the capitalists from dragging us down, by once and for all taking away their ability to injure us.