1960s >> 1962 >> no-695-july-1962

Editorial: The Ghost Walks Again

Our capitalists have seen a ghost, a ghost they had thought banished for ever, the ghost of 1929. It showed itself only for a moment, just long enough to revive terrible memories and turn optimism and complacency into fear and uncertainty.

The Chairman of the London Stock Exchange, with true British stolidity, denied that there was anything like panic. But the Americans have not been nearly so reticent and are quite ready to admit that at one stage on that horrible Monday only a hairsbreadth separated them from panic. Not for years were there such scenes on Wall Street, the ticker tape falling behind by 34 minutes at one point with prices dropping catastrophically. Although according to a correspondent of the Economist there was a wider price swing in 1955 when President Eisenhower had his heart attack, never since 1933 had so many small investors tried to get out of the market all at once.

The economic experts, so-called, have naturally been hard at work telling us all about it. The hacks were in right away discounting fears that it might be another 1929 and doing their best to keep up flagging spirits. Some of them were even describing the next day’s partial recovery as a boom. More sober assessments were being made by the end of the week, though they did not add much more to our knowledge than the wilder fancies earlier. Some blamed the crash on the small investor, others on President Kennedy’s recent harsh line with the U.S. steel companies, others comforted themselves with the thought that it had given a much needed shake-out to the market and that things would be healthier for it. But, even more than usual, none of them seemed willing or anxious to commit reputations to anything more than vague speculation.

It is, of course, the easiest thing in the world to read too much into stock market fluctuations. A fall in share prices, even a violent one, is in itself no indicator of a slump. The 1929 depression is superficially remembered by the Wall Street crash, but it was not caused by this. The crash was only the dramatic culmination of complicated economic forces that had been working themselves out for some time before. Thus the recent events on the world’s stock exchanges do not add up to a slump nor do they indicate necessarily that one is on the way. They are essentially the reflection of the present economic state of world Capitalism, in particular of American Capitalism.

After seventeen years of comparative prosperity, brought about largely by the need to make good the destruction of war and by the huge expenditure on preparations for another, the momentum is now slowing down. Goods are getting harder to sell, profit margins are having to be cut, and many industries are working well below capacity. The confident assumption that things were automatically going to get better was in fact already being questioned before the recent big break. It should not be forgotten that there had been a similar severe fall on Wall Street only a few weeks before and that the share price index had been dropping steadily for some months before then. It is against this background that we must look for the significance of the crash

Although basically reflecting the economic forces of Capitalism, the stock exchanges can, of course, react upon those forces in turn. It is almost certain, for example, that the recent shock has put paid to the belief of the Capitalists that prosperity was going to go on and on. On the other hand, it could just as easily convince them that things are actually going to get worse and thus help tilt the downward trend into a real slump.

The really interesting thing is to see the reactions of the Capitalist class and their advisers to the crash. In spite of all the talk about how Capitalism can be controlled, about how much has been learned about its workings since 1929, about Keynesian planning and the rest of it, they have been really shocked and frightened. They have seen a ghost they thought they had theorised into disappearing.

And they are not at all sure that their theories will be enough to prevent it coming back again.