The Great Depression: A Diary

When I graduated from law school in 1956, I was fortunate to be able to join my dad, Benjamin Roth, in his Youngstown, Ohio, law practice. By that time he had been a lawyer for thirty-seven years, and following the end of the Depression, he had developed a substantial clientele as a sole practitioner. As a new lawyer, I had no clients of my own and therefore devoted all of my time to working with my father’s clients. That is when I first learned that he had maintained a detailed diary of financial issues throughout the 1930s.

As my first assignment, Dad asked me to study the diary so that I could gain insight into the Depression mentality of his clients. He suggested that in order for me to represent them, I had to understand the traumas they had suffered during the Depression and the scars they still bore in the 1950s. I recall attending a meeting with an elderly client and a trust investment officer and listening to the client tell the officer that the only way he would transfer any of his assets into a trust would be if the bank would agree in writing to never invest any of his money in anything other than U.S. government bonds. (Subsequently, the client loosened that restriction, and the bank did very well by building a diversified, conservative portfolio.)

My grandfather Samuel Roth had come to this country in 1877 and settled in Manhattan, where Dad was born in 1894. The family relocated to Youngstown, Ohio, in 1900, and Dad attended the local schools. He then earned his undergraduate and law degrees at what is now known as Case Western Reserve University in Cleveland, Ohio, where he helped pay his college expenses by playing the violin in the orchestra pits of the local silent movie theaters. While in law school, he met my mother, Marion Benjamin, a student at Oberlin College. Immediately following his graduation from law school, Dad was sworn in as a lieutenant in the U.S. Army and joined his three brothers on active duty during World War I. At the end of the war, which coincided with my mother’s graduation from Oberlin, my parents were married in Cleveland.

In 1919 my folks settled in Youngstown, where my father opened his law office. A year later my sister, Connie, was born, followed five years later by the birth of my brother, Bob; I entered the family in September 1929 (thereby causing the entire stock market to crash, according to my parents!). I recall little before 1934, though I clearly remember that my parents constantly discussed money problems and “pinched” every penny. When I was six or seven years old, I fell and cut my forehead. As I lay on the sofa, bleeding badly, my mother phoned my father (yes, we had a phone) and asked whether we could afford to have a doctor come to the house (no, we had no car). My father called a doctor who was one of his clients. The doctor made the house call and patched me up—but then refused any payment because of my father’s having provided some legal services for him without charging a fee.

I have many fond memories of growing up in the 1930s, even as terrible as those years were. My mother taught piano lessons at home, and on most evenings our family would perform “concerts,” gathering around Mom’s piano with Dad playing the violin and we three children singing. On warm summer evenings, my parents would open the front door, and many of our neighbors would sit in our living room or on our front porch and join in the fun. Those were the days of simple pleasures; there was no need to spend money or to own a car. In retrospect, I realize that throughout their entire married life, my parents always lived within a short walk of the bus line, and even in his eighties my dad would leave his car in the garage and ride the bus to and from the office. When I first began to work with him, I offered to drive him downtown, but he refused, explaining that he enjoyed getting to know the other passengers, many of whom became his longtime friends.

In 1937 Dad purchased a new car, his first since selling his old one in 1932; my sister, Connie, left for college; and the country entered into a second deep depression. I can clearly recall my parents discussing whether they would be able to afford to keep Connie in college (there were no student loans in those days), and they finally told her to take one semester at a time and they would do their best to keep her in school. Their “best” was good enough, and Connie received her teaching degree and ultimately became a highly respected teacher in Boardman, Ohio.

As I read through this period in the diary, I am amazed by my father’s determination to learn as much as possible about economic issues. In fact, in spite of his financial hardships, he frequently writes about how grateful he is for the “post-graduate” education afforded him by the Depression. He often expresses his unquestioned belief in America and our capitalistic system as well as his conviction that conditions would ultimately improve with the result that we would be a stronger nation without changing to a communistic or socialistic society. Most of all, I gained tremendous respect for the strength and endurance displayed by both of my parents during those difficult years.

Dad was not the type to lecture, though. He taught by example. By the time I was in my early teens, Youngstown’s steel industry was booming again, and racketeers were getting rich on illegal gambling. Dad and two other men decided to run for city council on a platform of cleaning up the rackets. All three were elected, and they succeeded in driving the illegal gambling out of town (the racketeers simply opened up a gambling resort just outside the city limits called the Jungle Inn, which was ultimately closed by state and federal officials). Immediately after he was elected to office, he received a number of “gifts,” including free passes to all of the movie theaters. I was thrilled with this and could hardly believe it when Dad promptly returned all of the “gifts” with polite thank-you notes. When I complained to him that we should keep the movie tickets, he simply explained that honesty and integrity are not matters of degree.

My family survived the Depression and the war that followed. In 1943 Bob began his college education at Oberlin, but then joined a program with the U.S. Navy that resulted in his receiving his bachelor’s degree from Harvard. After serving as a naval officer, he earned his law degree from Columbia and became associated with a Manhattan law firm. By 1951 my parents’ lives had finally calmed down, and they were beginning to prosper. I had received my bachelor’s degree and was serving on active duty as an air force lieutenant during the Korean War when their lives fell apart again. I was called home on an emergency leave to attend my brother’s funeral. Even though more than fifty years have passed, I can still remember my parents’ grief. It took years for my parents to put their lives back in order, only to then watch my sister, Connie, die at the age of fifty-three.

How my parents coped with these tragedies is beyond my comprehension, but they did—and came out stronger than ever. Mom threw herself into club work and was elected president of every club she joined. She ultimately served as president of the General Federation of Women’s Clubs in the state of Ohio. When she died at the age of ninety-seven, there were still clubs bearing her name: the Marion B. Roth Club, a Youngstown-area organization, and a statewide club called the “Marionettes.”

Dad’s therapy was to increase his workload. He continued practicing law until shortly before his death at the age of eighty-four. It was my great fortune to have been able to work side by side with him for more than twenty-eight years. He was my partner and mentor, and for that I am truly blessed. My parents never left Youngstown; it was their life.

During the time I worked so closely with Dad, he frequently discussed his diary. He looked forward to his retirement, when he planned to edit and publish it. Needless to say, he never retired. In 1978 he gave me the diary, consisting of fourteen handwritten notebooks that included entries from 1931 to 1978 (this volume ends in 1941, as the U.S. entry into World War II finally marked the end of the Depression). He expressed the hope that I would someday fulfill his wish, and I am very proud now to do so.

During this time I received an e-mail from a Bill Roth at Citigroup, who told me that his grandfather Benjamin had kept a diary during the 1930s. He asked whether my fledgling Web site, The Big Money, online for barely a month, would be interested in publishing parts of the diary, and sent me some sample entries. My eye was drawn to this entry, dated July 30, 1931:

This was, of course, exactly what was being said in the media as I was reading it seventy-seven years later.

Another entry, dated August 9, 1931, reads:

I couldn’t stop my mind from jumping to a place I didn’t want it to go: Could we be headed for another Great Depression? Immediately, my defenses kicked in: No matter how many leading financial institutions were failing, we weren’t yet even in a declared recession. The government had a massive, unprecedented plan to save the banks. We had the Federal Deposit Insurance Corporation (FDIC) and a truly globalized economy, both powerful cushions against what happened in the early thirties. It couldn’t get that bad again—could it?

Yet the more I read the diary, the more I realized that no one living in the 1930s had known for certain that they were headed into a depression, either, until they were in its midst. And even then, they constantly scoured the landscape for signs of recovery, as we are doing today.

Benjamin Roth’s diary is a remarkable document, spanning fourteen handwritten volumes over five decades. In the early part of Roth’s professional career—the years before he began keeping this journal—his law practice grew as part of Youngstown’s historic boom. In 1900 the population of Youngstown was 45,000; by 1930 it was 170,000. That explosive growth was almost entirely the result of the rising steel industry. Youngstown possessed that magical combination necessary to produce steel: proximity to coal, limestone, and iron ore, plus capital, from the success of the iron industry in the late nineteenth century. Like the discovery of gold in California a half century before, the production of steel in Youngstown created a genuine boomtown, with ripple effects felt throughout the nation’s economy. At the beginning of the twentieth century, the steel industry in and around Youngstown was still embryonic; by 1927 it surpassed Pittsburgh as America’s largest steel-producing region.

A burgeoning town—with the need for increased housing and commercial activity—provided a young lawyer with plenty of business. While steelworkers themselves did not make high salaries, the managers of companies like Republic Steel (founded in 1899 and eventually the third-largest steel producer in America), Youngstown Sheet & Tube (founded in 1900, and for Roth the very barometer of local economic conditions), and Truscon Steel (a steel-door manufacturer that was purchased by Republic Steel but continued to do business under the name) prospered, and there was plenty of work to be done in property deeds, insurance, and similar commercial law work.

But not long after the stock market crash of October 1929, much of the region’s economic activity went into reverse, a process that Roth set out to understand as a witness at the center of the storm. To this day, historians, journalists, and economists continue to debate the exact forces that caused the worst economic downturn in American history. Like many of his contemporaries, Roth considered the 1929 stock market crash as the start of the Depression. Hordes of people who invested their life savings in the market were wiped out during the punishing “black days” of late October 1929. Stock values had begun to soften in September of that year, but on Thursday, October 24, mass selling caused the prices of the stocks to drop dramatically as brokers couldn’t find buyers to keep the stock value afloat. Investors’ panic continued on Monday, October 28. Millions more shares were traded, and stock prices continued to plummet. Then on Tuesday, October 29, the market completely collapsed: More than sixteen million shares traded and fifteen billion dollars in assets were lost. By mid-November the market had lost more than a third of its value.

While the gut-wrenching drama that played out in the stock market those October days made an indelible mark on Roth and many Americans, only about 2.5 percent of Americans actually owned stocks in 1929. Many subsequent historians see the crash as more of a catalyst for the Depression than its cause. Still, as economist Joseph Schumpeter put it, Americans of all walks of life “felt that the ground under their feet was giving way.” And the crash closed a frenetic era in American economic history, a period in which the stock market became the get-rich equivalent of the previous century’s gold rush. The notion that anyone with just fifteen dollars a week could become a millionaire by “playing the market on margin” pervaded American culture during the boom of the 1920s. This helps explain why Roth—who did not own stocks in the period covered by this diary—paid such close attention to the market. (In fact, we have cut many entries where closing stock prices were included with no context or commentary.) The seemingly endless rise in the stock market in the 1920s was exhilarating: Radio, newspapers, and even women’s magazines fostered and capitalized on this fascination by running stories daily on the market and ways to get rich on stock “tips.” As Roth ruefully noted later, many amateur investors had little to no knowledge about investment fundamentals, or even the specific health of the companies in which they invested; they were speculators, through and through. As the saying goes, they got theirs.

While the Great Crash didn’t cause instant mass unemployment or suddenly halt production lines, the events of October 1929 did expose structural problems in the 1920s boom economy. And the response was rapid; within a few months, new car registrations fell by almost a quarter from the September figure. As families, earning on average just two thousand dollars a year, cut back on their spending, manufacturers, stuck with overstock and expensive overhead, began to lay off workers. As the unemployed struggled with bills and consumed even less, more companies cut back on workers or even closed up shop. The unemployment rate skyrocketed. In 1929 the nonagricultural sector was about 1.5 million, or 3.2 percent unemployed. By 1930 it was 8.7 percent, or about 4 million. By 1931, when Roth started writing down his thoughts on the events around him, the jobless had nearly doubled to 15.9 percent, or 8 million.

When Roth begins his “Notes” in 1931, he is conscious of a delineating crisis, one that obliterates the twenties-era intoxication forever (or so, I think, Roth would have believed). But he is not particularly scolding of the culture surrounding wealth or a bubble; rather, he seems dispassionately scientific in wanting to know how economic forces behave.

That he could summon such dispassion is itself remarkable, in an age that stoked passion into panic. More than in any economic downturn before or since, Americans during this era feared that the very pillars on which their society had always stood—democracy and free enterprise—could crumble and be replaced by something unrecognizable in the country’s history. This was hardly an idle fear: Germany had elected a Nazi government in 1933, largely in response to years of an imploded economy. Japan and Italy were being run by Fascists, and Stalin was in the process of turning the Soviet Union into a ruthless dictatorship. Historian Arnold J. Toynbee, who would go on to write a twelve-volume history of how civilizations rise and fall, wrote at the time, “In 1931, men and women all over the world were seriously contemplating and frankly discussing the possibility that the Western system of Society might break down and cease to work.”

And there was no shortage of advocates, on the Left or Right, who were eager to fill that void on American soil. The very first days of Franklin Roosevelt’s presidency saw not only a reversal of the largely ineffective Hoover policies but an extension of federal control over the economy that Americans had never witnessed. Some on the Right attacked Roosevelt for dabbling in socialism, a position with which Roth seemed to sympathize in certain instances. Whether the various programs of the New Deal constituted socialism or partial socialism depends on one’s definition of that elastic term, and many historians take the position that even if Roosevelt had to curtail aspects of the free market, it was in order to save capitalism. But certainly the National Industrial Recovery Act, Social Security, the Agricultural Administration Act, Securities and Exchange Act, and Federal Deposit Insurance Corporation constituted government intervention into the minutiae of business activity that had no peacetime precedent in the United States. Furthermore, jobs programs in the Civil Works Administration, Works Progress Administration (WPA), and Civilian Conservation Corps resembled the types of government-sponsored employment that was often a feature of Socialist or Fascist governments. The fact that key parts of Roosevelt’s agenda were struck down as unconstitutional—which the legally trained Roth often pointed out—lends some credence to the idea that Roosevelt’s view of government and executive power tipped over into antidemocratic extremes.

For many others, however, the New Deal was not extreme enough. Due in part to the surge in labor organizing made possible by the National Industrial Recovery Act, the Communist Party of the United States flourished in the 1930s. Its leaders advocated that the United States follow the Soviet model of revolution, eliminating capitalism and anointing the working class to run the society. It is doubtful that more than a few million Americans genuinely preferred this direction; actual CPUSA membership never topped one hundred thousand, and while party-affiliated organizations might have brought that number more comfortably into six figures, not all factions would have shared a Soviet-style society as a goal.

At the same time, there were many Americans who felt that if the fall of Democratic Capitalism was inevitable, Socialism in some form was preferable to other alternatives. And certainly Communists, Socialists, and their allies—particularly in trade unions—had a significant impact on social and cultural life during this period. Roth’s writing does not dwell on the politics of the Left, especially not before the introduction of the New Deal. Still, it is worth noting that Roth begins his diary on June 5, 1931; just six days earlier, one of the most violent confrontations in Youngstown’s history had taken place. A group of hundreds of Communists had been trucked into Youngstown from all across Ohio, Pennsylvania, and West Virginia to recruit members from its newly opened flophouses and soup kitchens and disrupt the city’s Memorial Day celebration. A violent clash with police ensued, and more than two hundred people were arrested and dozens injured and hospitalized.

Other extremists and populists also tempted America. The chameleon-like Father Charles Coughlin mesmerized millions of Americans over the radio, railing against Jews, capitalism, communism, Roosevelt, and the Federal Reserve system. In Youngstown the Ku Klux Klan had a particular appeal. Steel-industry jobs attracted workers from all over the world; according to the 1920 census, 60 percent of the city’s population had been born outside the United States. Such a large, and mostly Catholic, immigrant population made the Klan’s nativist message popular among Protestants, and in 1923 a majority of Youngstown’s city council was affiliated with the Klan. It was not fantasy to believe at this time that Socialists, Communists, Fascists, or extreme populists might take power in parts of the United States, whether by force or sympathy.

Not that such political ferment was Roth’s day-to-day concern. By dint of his professional standing and class, Roth was a natural-born Republican. He notes in the diary that he supports Hoover’s reelection in 1932, Alf Landon in 1936, and Wendell Willkie in 1940. For that reason it’s all the more remarkable that Roth became a public advocate for Roosevelt’s National Recovery Act in 1933. At one point that year he notes that he is doing so much on behalf of the NRA—including five speeches on a single Sunday—that he has time for little else. Yet within weeks he is questioning whether the NRA (or indeed any of the early New Deal programs) is doing any good and fears that the tremendous government debt may be doing harm. Supporting the NRA was, he explains, a simple civic duty, although reading between the lines, it seems clear that Roth was an effective public speaker and that he may well have developed a taste for the public spotlight (he would go on to hold elective office in Youngstown).

In our shorthand history of the period, we tend to think of a 1920s stock market boom—which Roth documents vividly, if retrospectively—followed by abject dust-bowl poverty, in which no one had money even for sufficient food or decent shelter, the Roaring Twenties replaced by haunting images from Dorothea Lange. Roth’s diary is a firsthand reminder that the reality was far more complex, that minibooms and minibusts existed during this period, in which post-1929 fortunes were being made as well as lost. Granted, the crash was one of the most devastating events in stock market history; the 1929 high in the Dow Jones Industrial Average of 381.17 would not be reached again for another quarter century. Yet in the period from 1929 to 1939, neither the stock market nor the economy as a whole went in one continuous direction.

Benjamin Roth’s writing asks a central question, namely, how should an honest, prudent person create wealth, protect it, and build it over the course of a lifetime?

It is fascinating to follow the evolution of Roth’s thinking about investment. As he watches the market mostly plunge in the 1931-1932 period, he seems mostly to feel that stocks are a sucker’s game. At the same time, he is tantalized by the prospect of bargain hunting among stocks—notably railroads and steel—that had lost nearly all their value, even though their underlying businesses seemed sure to rebound eventually. He also began to see that even though real estate seemed like a reliable investment—it is finite, tangible, and can be self-financing by charging rent—in a prolonged downturn, it could be devastating. The costs of upkeep, taxes, mortgage payments, and insurance are usually inflexible, whereas rental income could easily dry up if renters don’t have jobs. All around him buildings were being torn down because the owners would rather lose their investment than be forced into bankruptcy by their inability to pay property tax.

In the mid-thirties Roth begins to lay out an approach to investing based on controlling risk, maintaining liquidity, and protecting principle. Today, even casual investors are familiar with ways to describe the types of investment strategies toward which Roth gravitated: “value investing,” “buy and hold,” even “dollar-cost averaging.” But for Roth, these were not strategies to be bought off the rack; he had to build them himself—studiously, patiently, and, at least during the period covered by this book, entirely theoretically. He later regretted not having had the available cash to buy stocks when they hit historic lows and then recovered. (Roth would eventually come to buy individual stocks although, according to his son, only in very large companies, and always part of an investment portfolio that also included bonds and real estate.)