152 ChaPter 3
rose, it created a bandwagon effect and more people invested in stocks, simply
because the numbers were rising so quickly and creating huge financial prof-
its. The prices of the stocks, however, were not consistent with actual produc-
tion and demand [or purchase]. The average earnings per share from 1923 to
1929 rose by 400 percent, a huge, and often called “irrational,” leap.
Investments in the stock market are supposed to make businesses grow—to
build new plants, develop new equipment, hire more labor, and so forth. But
by 1929, there was no longer any significant need for plants, equipment, or
new workers—the economy had reached its maximum limits. So, despite all
these rising figures indicating economic success, industrial leaders began to
pull out of the market by the latter part of 1929; they understood that con-
sumer demand had peaked and that stocks were overvalued, and thus with-
drew about $7 billion in short order. As the market began to decline, other
investors followed the bandwagon again, this time in the other direction, and
began selling and the demand for stocks dried up.
On Thursday, October 24th , 1929, the stock bubble popped. On Black
Thursday, as it was called, there was a massive sell off on the New York Stock
Exchange. Within three hours $11 billion dollars in value had disappeared.
By noon, bankers and members of the Stock Exchange each put up $200 mil-
lion to try to steady prices and it seemed to work. Within an hour U.S. Steel
was up $15, General Electric $21, Montgomery Ward $23, and AT&T had
recovered $22 per share. Those first few hours, however, had shaken bankers,
brokers, and the public confidence that the market was sound. A rumor
spread that federal troops were on the way to protect the market from being
mobbed by the public. Another rumor suggested several brokers had commit-
ted suicide. President Hoover, seeking to calm a nervous nation, announced
that the “fundamental business of the country...is on a sound and prosperous
basis.” Americans remained anxious over that weekend to see if Hoover’s
pronouncement was valid. They found out soon.
On Monday, when the market opened, there was a rush to sell. AT&T was
down again, this time by $24. Eastman Kodak lost $41 per share. A day later,
on October 29, Black Tuesday, the Stock Market crashed. Stockholders
dumped a record volume. As one security guard described the chaos, “It was
like a bunch of crazy men...every once in a while when [a] Radio or Steel
[stock] would take another tumble, you’d see some poor devil collapse and
fall to the floor.” In the panic to sell, $30 billion in market value disappeared.