Evening star., 1946-09-15
Market Tumble Held
No Herald of Crash
Blunderins by Government and
Key Strikes Called Real Threat

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(Charles Cortez Abbott Is professor
OF business economics at Harvard
Business School. He serred NTH the
Wdr Shipping Administration In
1928 and has contributed many
articles to business and economic
Journalist
By Charles Cortez Abbott
PUTNAM, Conn, Sept. l4-The vio-
lent decline in the stock market since
the middle Of August has become a
matter Of great public interest. Ordi-
nary citizens uneasily recall 1929 and
the bad times that followed They say:
What made the market fall? What
does the break forecast? How will the
decline affect me?"
Until last month the market had
risen almost continuously for four years.
After such long rise, a sell-off is not
surprising. But why have people want
ing to sell stocks suddenly become so
insistent, willing to sell at lower and
lower prices? Why are buyers willing
to buy only at low prices2
We all know that during the summer
many people became disturbed over the
foreign situation. 1t is not entirely clear,
however, why this concern should have
increased their desire to sell stocks.
Many people also have become dis
turbed about the power of Union lead
ers and the prospect of more strikes.
Strikes interrupt the production and
distribution Of goods and commodities.
When the production process is broken.
business concerns find it difficult to
make profits. Since stock prices depend
on earnings, they are marked down in
the market. when earnings prospects are
poor.
Underlying these sentiments Is the
confusion in the horde of Government
agencies, administrations and corpora
tions spawned before and during the
war. Inefficient, cumbersome and op-
pressive Government is very bearish
influence on stock prices.
Finally, it has become evident during
the past II months that if business is
to make the quantity of things We want,
1t needs tremendous amounts of money
to invest in plant equipment and in
ventories. During the last year. bank
loans to business have risen 80 per cent
or more and during the first six months
of l946, new money" security offerings
were greater than they had been since
1880. If We think Of existing securities
and of new securities as competing for
the investors dollar, We can see that
this new demand can divert the in
vestor's funds from existing securities
and thus check the rise in stock prices.
These and other factors have added UP
to desire on the part of many people
to hold cash rather than stocks and on
the part Of other persons a determina-
ton not to buy the stocks offered except
at lower prices
Why has the markets fall been so fast7
In recent years the market has been
unusually thin-that is, prices often have
risen or fallen substantially when only
few shares we're changing hands A
determined buyer commonly has had to
raise his bid in order to get what he
wanted even when buying only a few
shares. An insistent seller has had to
mark his stock down appreciably in
order to sell even a small amount. When
markets are thin, prices move rapidly
once movement up or down gets under
way.
Unquestionably, many of the regula-
tions of the past Is years such as those
restricting short-selling and the use of
borrowed money in the purchase Of
stocks have greatly contributed to max
ing the market thin. These regulations
have had the effect of restricting the
operations Of spectators, dealers and
so-called professionals.
The experiences of l929-1e32 showed
that some types of stock market opera
tions were against the public interest
and needed to be restrained Yet in the
case of virtually all things commonly
bought and sold in an organized market,
whether stocks, bonds, cows. chicken feed
or plumbers supplies, the dealers make
the market" Their operations make it
possible for the ordinary man who is
not a dealer or professional to buy or
sell quickly and easily and at relatively
stable prices.
The ordinary citizen is more inter-
ested in whether the present market
break forecasts a business depression
than he is in any other aspect of the
slump, 1t seems most improbable that
we are faced with any debacle such
as We experienced after 1929.
Admittedly, the fall in stock prices
will check some consumer spending.
Clearly, high labor costs hamper those
companies where wages in large meas
ure determine selling prices Probably
during the next few months the SUD-
ply of some raw materials will become
so great that prices will decline. Grain
prices, in fact, already have started
down
On the other hand we all are aware
that the country is about to have
construction boom. The need for reno
vation or repair Of what we have Is
equally acute. The accumulated de-
nand for wide variety of goods is
very great. The amount of money in
the hands of the public which roughly
measures the publics ability to buy
Is four times what 1t was in 1899. Funds
available for unemployment payments
are immense.
Under these circumstances 1t is diff
cult to believe we face any severe
business recession unless the country's
productive processes become much more
disorganized than they are at present.
Such disorganization could take place
tHoF