The Dow Jones Industrial Average (Dow Jones Indices:.DJI) plunged nearly 3% on May 2, 1930, the day after President Herbert Hoover stridently assured the public that the worst of the crash was over. It seemed as if market participants were telling him, “It’s over when I say it’s over!” The Washington Post reported “selling in enormous volume. … More than two million shares were dumped on the market in the last hour of today’s five-hour session.” The Dow Jones Industrial Average (Dow Jones Indices:.DJI) closed the day at a value of 266.56, already 30% lower than its peak in September of 1929. This would have been a moderate and reasonable pullback, in line with many prior bear markets — but of course, we now know this was only the beginning.
Here are some of the more pertinent comments made by President Hoover to the United States Chamber of Commerce which would prove to be very wrong and premature. The most egregious or otherwise curious statements have been emphasized:
We have been passing through one of those great economic storms which periodically bring hardship and suffering upon our people. There is one certainty in the future of a people of the resources, intelligence, and character of the people of the United States — that is prosperity. …
We have succeeded in maintaining confidence and courage. Those dangers are behind us. From the moment of the crash, interest rates have steadily decreased and capital has become steadily more abundant. Our investment markets have absorbed over $2 billion of new securities since the crash. … For the first time in the history of great slumps we have had no substantial reductions in wages and we have had no strikes or lockouts which were in any way connected with this situation. …
in the commercial field through the Federal Reserve System, in the industrial field through the bond market and the investment houses, in the farm mortgage field to some extent through the Farm Loan System; and in the installment-buying field through the organization of powerful finance corporations.
The result of the inability to freely secure capital has been a great diminution in home construction and a large segment of unemployment which could have been avoided had there been a more systematic capital supply organized with the adequacy and efficiency of the other segments of finance. We need right now an especial effort of our loan institutions in all parts of the country to increase the capital available for this purpose as a part of the remedy of the present situation. …
Another of the byproducts of this experience which has been vividly brought to the front is the whole question of agencies for placing the unemployed in contact with possible jobs. The whole subject is one of profound importance. …
We are not yet entirely through the difficulties of our situation. We have need to maintain every agency and every force that we have placed in motion until we are far along on the road to stable prosperity.
The value of life
America’s first life insurance company began on May 2, 1759. Known as “The Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers,” it was designed — as you might expect — to pay annuities to the families of deceased ministers in Philadelphia and New York. It was formed seven years after Benjamin Franklin established the first insurance company of any kind, but due to its narrow focus the Presbyterian Ministers’ Fund (as it’s now known) was originally not-for-profit, although it eventually expanded its reach to insure all people who might qualify.
Shortly after its formation, the Fund had issued a mere 21 policies, but its assets continued to grow until the time of the American Revolution, when the Fund’s pro-colonial board decided to loan 5,000 pounds (equivalent to more than $10.7 million when compared to the average earnings of the time) to the Continental Congress in 1777. After the war, the Fund nearly fell into insolvency when its will to enforce subscription payments wavered, leading to the first efforts to expand its coverage to the entire populace. This would remain a thorny issue with the Fund’s leadership for more than a century, and the Fund never quite figured out whether it wanted to insure everyone, every Presbyterian, or simply every Presbyterian minister. This problem eventually worked itself out when the Fund was bought out by Provident Mutual, which was itself acquired by Nationwide Insurance in 2002.
