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Fourth International, May 1949


Robert Phillips

Economic Notes

Stock Market Blues


From Fourth International, Vol.10 No.5, May 1949, p.138.
Transcription & mark-up by Einde O’Callaghan for ETOL.


Once upon a time, an ancient fable tells us, the wind and the sun had a contest to determine which was the more powerful. The object of their attention was a man in a field who was wearing a coat – the one who could make the man remove his coat would be adjudged the stronger. First, the wind blew and blew cold and wintry blasts which made the man tighten his coat around him for protection. Then, the sun shone hot and bright and finally the man removed his coat because of the intense warmth.

* * *

And so it is with the stock market. On March 21, Life magazine carried a feature article bemoaning the apathy which, characterizes the popular attitude toward the stock market. It was a glowing account of how cheap stocks are today, how $22 million would have been sufficient to purchase control of the Curtiss-Wright Aviation Corp. in 1947 when that company had $100 million in cash in its till. Ten “bargain stocks” each selling for less per share than the working capital of the corporation were described and the opportunities to invest in a “sure thing” were pointedly presented. The day preceding the publication of this article, the 10 “bargain stocks” shot up more than 5 percent in value on the basis of a “leak” while the market remained static. Weeks later, these stocks are slowly sinking back to their pre-Life price.

But this was only the first wintry blast in the campaign, to make the “suckers’’ conscious again. On March 29, the Federal Reserve Board lowered margin requirements to 50 percent (which means that stock equivalent to twice the value of cash put up may be purchased). How did the market react? A brief flurry resulted. For two days, the average rose 2.2 points on a volume of 3.7 million shares. But then it settled back into the same doldrums that have characterized its movement for the last couple of years.

Why this apathy? The financial editors reiterate each day: “The system is sound ... it is only undergoing a healthy (sic!) return to normalcy.” But the investors, the “risk-takers” appear to have no faith in “their” system. In 1929, they bought and sold 1,125 million shares of stock when national income was $87.4 billion or $716 per capita. Yet in 1948, with national income at $228.2 billion, more than 2½ times the 1929 level and $1,485 per capita, sales on the stock exchange totaled a mere 413.5 million shares, about one-third of the 1929 volume. And as if to add insult to injury, financial editors are wont to point out, yields on common stock are 6% percent today, while in 1929, they were only 3.5 per cent. Price of stocks too are cheaper. The Dow-Jones average of all stocks is 63.95 today; in 1929, it was 125.43.

But no matter what the “logic” or how hard the “wind” of opportunity blows, the “suckers” just won’t part with what little money they have. To help the seduction process along, the Stock Exchange this year authorized the expenditure of $500,000 on a series of advertisements asking the American public to “take a chance” on the capitalist syste.m. And following this lead, the brokers, big and little, have embarked on a nation-wide advertising campaign. Their slogan: “Get a 10-dollar bill for five dollars.”

Today’s indifference, still unbroken despite the continuing blandishments, is , clearly manifested when stocks react more violently to one of Stalin’s or Truman’s pronouncements on foreign policy than they do to a favorable earnings report issued by US Steel. But soon, the brokers, financial editors, and the editors of Life hope, the hot sun will shine and the “suckers” will realize the “wonderful opportunity’’ open to them.

“It is an unfortunate fact,” says Life magazine, “that many small investors never get interested in stocks until they are already in the last stages of a bull (rising) market and then they rush in with a frenzy akin to Holland’s tulipo-mania.”

With the sun then shining in all its fury, the “sucker” is inveigled to part with his clothing and adopt a barrel as his attire.

The “sucker” may once again yield, to that great mirror of capitalist insanity – the stock market – or else he may have learned a lesson from the frenzied purposelessness of the late ’twenties and realize, that the speculation markets are, to use Marx’s term, a fetishism, which masks real relations (the productive forces) by endowing their disguises (the stock and other speculative exchanges) with the aura of primacy.

The blind faith of the ’twenties in the soundness of capitalism is giving way to a deep-seated cynicism. And it is not likely that the millions to be spent on advertising will bring more than meager results. The “sun” isn’t shining very brightly these days.

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