In 1929, the wild financial speculation of the Roaring Twenties came to a sudden halt in October when the stock market began to slide.
Banker's Committee Stops Panic of '29 Worries spread through the economic community about the passing of the Smoot-Hawley Tariff Act. Tariffs had always been a point of contention among Americans, even spurring South Carolina to threaten secession over the Tariff Act of 1828. Producers such as farmers and manufacturers called for protective tariffs while merchants and consumers demanded low prices. The American economy soared while post-war Europe rebuilt in the '20s, and the Tariff Act of 1922 skimmed valuable revenue from the nation's income that would otherwise have been needed as taxes. The country barely noticed, and the economy surged forward as new technological luxuries became available as well as new disposable income.
Meanwhile, however, the nation faced an increasingly difficult drought while food prices continued to drop during Europe's recovery. Farmers were stretched thinner and thinner, prompting calls for protective agricultural tariffs and cheaper manufactured goods. In his 1928 presidential campaign, Herbert Hoover promised just that, and as the legislature met in 1929, talks on a new tariff began. Led by Senator Reed Smoot (R-Utah) and Representative Willis C. Hawley (R-Oregon), the bill quickly became more than Hoover and the farmers had bargained for as rates would increase to a level exceeding 1828 for industrial products as well as agricultural. "The revenue would be a great boon, but it unnerved economists, who wondered if it could kill the economic growth already slowing by a dipping real estate market.
The weakened nerves shifted from economists to investors, who took the heated debate in the Senate as a clue that times may become rough and decided to get out of the stock market while they could. Prices had skyrocketed over the course of the '20s as the middle class blossomed and minor investors came into being. Another hallmark of the '20s, credit, enabled people to buy stock on margin, borrowing money they could invest at what they hoped would be a higher percentage. The idea of a "money-making machine" spread, and August of 1929 showed more than $8.5 billion in loans, more than all of the money in circulation in the United States. The market peaked on September 3 at 381.17 and then began a downward correction. At the rebound in late October, panicked selling began. On October 24, what became known as "Black Thursday", the market fell more than ten percent. On Friday, it did the same, and the initial outlook for the next week was dire.
Amid the early selling in October, financiers noted that a crash was coming and met on October 24 while the market plummeted. The heads of firms and banks such as Chase, Morgan, and the National City Bank of New York collaborated and finally placed vice-president of the New York Stock Exchange Richard Whitney in charge of stopping the disaster. Forty-one-year-old Whitney was a successful financier with an American family dating back to 1630 and numerous connections in the banking world who had purchased a seat on the NYSE Board of Governors only two years after starting his own firm. Whitney's initial strategy was to replicate the cure for the Panic of 1907: purchasing large amounts of valuable stock above market price, starting with the "blue chip" favorite U.S. Steel, the world's first billion-dollar corporation.
On his way to make the purchase, however, Whitney bumped into a junior who was analyzing the banking futures based on the increase of failing mortgages from failing farms and a weakening real estate market. He suggested that the problems of the new market were caused from the bottom-up, and a top-down solution would only put off the inevitable. Instead of his ostentatious show of purchasing to show the public money was still to be had, Whitney decided to use the massive banking resources behind him to support the falling. He made key purchases late on the 24th, and then his staff worked through the night determining what stocks were needlessly inflated, what were solid, and what could be salvaged (perhaps even at a profit). Stocks continued to tumble that Friday, but by Monday thanks to word-of-mouth and glowing press from newspapers and the new radio broadcasts, Tuesday ended with a slight upturn in the market of .02 percent. Numerically unimportant, the recovery of public support was the key success.
With the initial battle won, Whitney spearheaded a plan to salvage the rest of the crisis as real estate continued to fall and banks (which were quickly running out of funds as they seized more and more of the market) would soon have piles of worthless mortgaged homes and farms. Banks organized themselves around the Federal Reserve, founded in 1913 after a series of smaller panics and determined rules that would keep banks afloat. Further money came from lucrative deals with the wealthiest men in the country such as John D. Rockefeller, Henry Ford, and the Mellons of Pittsburgh. Businesses managed to continue work despite down-turning sales through loans, though the unemployment rate did increase from 3 to 5 percent over the winter.
The final matter was the question of international trade. As the Smoot-Hawley Tariff Act continued in the Senate, economists predicted retaliatory tariffs from other countries to kill American exports, but Washington turned a deaf ear. Whitney decided to protect his investments in propping up the economy by investing with campaign contributions. Democrats took the majority as the Republicans fell to Whitney's use of the press to blame the woes of the economy on Congressional "airheads". Representative Hawley himself lost his seat in the House, which he had held since 1907, to Democrat William Delzell. President Hoover, a millionaire businessman before entering politics, noted the shift, but remained quiet and dutifully vetoed the new tariff.
By 1931, it became steadily obvious that America had shifted to an oligarchy. The banks propped up the market and were propped up themselves by a handful of millionaires. If Rockefeller wanted, he could single-handedly pull his money and collapse the whole of the American nation. Whitney took greater power as Chairman of the Federal Reserve, whose new role controlled indirectly everything of economic and political worth. As the Thirties dragged on, the havoc of the Dust Bowl made food prices increase while simultaneously weakening the farming class, and Whitney gained further power by ousting Secretary of Agriculture Arthur Hyde and installing his own man as a condition for Hoover's reelection in '32.
Chairman Whitney would "rule" the United States, wielding public relations power and charisma to give Americans a strong sense of national emergency and patriotism during times like the Japanese War in '35 (which secured new markets in East Asia) and the European Expedition in '39. He employed the Red Scare to keep down ideas of insurrection and used the FBI as a secret police, but his ultimate power would be that, at any point, he could tamper with interest rates or stock and property value, and the country would spiral into rampant unemployment and depression, dragging the rest of the world with it.