Fredrick Lewis Allen, Only Yesterday (1931)

Only Yesterday addresses the history of America from the First World War to after the Great Crash. 

In Chapters 12 and 13 – which you can read in full here – it provides a lively and detailed account of events leading up to the Great Crash of 1929. 

Allen portrays the stock market boom as rooted in the atmosphere of growth in America in the 1920s: "For many Americans it was a glorious ride, an experience exhilarating in its newness, the thrill of more and better things".  Over-confidence led to a desire to get-rich-easy, reckless investments and a disregard for the many warnings.  People expected endless growth, when the stock market was actually “a gamble pure and simple”.  Allen believed that the Crash did not just damage foolish investors' bank accounts ...  it destroyed the American Dream.

For thirty years this interpretation of the Crash was accepted as true.  The historian JK Galbraith (1955), whose interpretation was similar, declared Allen “a good historian and a superb writer, [who] brought the great days alive as part of his classic history of the nineteen-twenties, Only Yesterday.”

From the 1960s, however, historians began to challenge his negative interpretation of the Crash.  In 1999 the historian David Kennedy, while accepting that Only Yesterday "fixed the historical image of the 1920s in the minds of several generations of readers", regarded that image as "grossly distorted" and "wildly exaggerated", accusing it of "many deficiencies":

Another of the fables that has endured from that turbulent autumn – thanks largely to the immense popularity of Frederick Lewis Allen’s nostalgic essay of 1931, Only Yesterday – portrays legions of slap-happy small stockholders, drunk with the dreams of the delirious decade, suddenly wiped out by the Crash and cast en masse into the gloom of depression. 

Maury Klein (2003), however, has a much more positive attitude towards Allen, whom he quotes extensively and with respect:

“If there is a common thread in the literature seeking to explain the crash and its aftermath, it is the importance of mood and the power of illusion to influence people's behavior.  Writer Frederick Lewis Allen, one of the earliest and most astute students of the subject, expressed in 1931 a view that many later writers would develop in a variety of ways: 'Prosperity is more than an economic condition, it is a state of mind'...  This insightful observation is all the more remarkable for having come so soon after the crash."

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Some Quotes:

““The banker who advised caution was quite right about financial conditions, and so were the forecasters.  But they had not taken account of the boundless commercial romanticism of the American people, inflamed by year after plentiful year of Coolidge Prosperity.  For on March 3, 1928 – the very day when the Hansard prophets were talking about intermediate declines and the Times was talking about hesitation – the stock market entered upon its sensational phase.”

“What was actually happening was that a group of powerful speculators with fortunes made in the earlier days of the hull market in stocks ,,, were buying in unparalleled volume.  They knew their American public.  It could not resist the appeal of a surging market.  It had an altogether normal desire to get rich quick, and it was ready to believe anything about the golden future of American business.  If stocks started upward the public would buy, no matter what the forecasters said, no matter how obscure was the business prospect.  They were right.  The public bought.”

“During that ‘Hoover bull market’ of November, 1928, the records made earlier in the year were smashed to flinders.  Had brokers once spoken with awe of the possibility of five-million-share days? Five-million-share days were now occurring with monotonous regularity; on November 23rd the volume of trading almost reached seven millions… By the summer of 1929, prices had soared far above the stormy levels of the preceding winter into the blue and cloudless empyrean.”

“The rich man's chauffer drove with his ears laid back to catch the news of an impending move in Bethlehem Steel; he held 50 shares himself.  The window-cleaner at the banker's office paused to watch the ticker, for he was thinking of converting his savings into a few shares of Simmons ...  a broker's valet who made nearly a quarter of a million on the market, a trained nurse who cleaned up $30,000 following the tips given her by grateful patients; and the Wyoming cattleman, 30 miles from the nearest railroad, who bought or sold 1,000 shares a day.”

“The holding companies were like a cream-separating machine, which skimmed off the richest of the profits when these were increasing… Meanwhile investment trusts multiplied like locusts.  Some of them, it has been said, were so capitalized that they could not even pay their preferred dividends out of the income from the securities which they held, but must rely almost completely upon the hope of profits.”

“As you look at the high prices recorded on September 3, 1929, remember that on that day few people imagined that the peak had actually been reached.  The enormous majority fully expected the Big Bull Market to go on and on.”

“In view of what was about to happen, it is enlightening to recall how things looked at this juncture to the financial prophets, those gentlemen whose wizardly reputations were based upon their supposed ability to [predict] whether things were going to get better or worse.  Their opinions differed, of course; it must furthermore be acknowledged that a bullish statement cannot always be taken at its face value: few men like to assume the responsibility of spreading alarm by making dire predictions, nor is a banker with unsold securities on his hands likely to say anything which will make it more difficult to dispose of them, unquiet as his private mind may be.”

“On that momentous day [Thursday October 24th] stocks opened moderately steady in price, but in enormous volume.  The pressure of selling orders was disconcertingly heavy.  Prices were going down… Presently they were going down with some rapidity...  Before the first hour of trading was over, it was already apparent that they were going down with an altogether unprecedented and amazing violence”

“The principal cause of the break in prices during that hour on October 24th was not fear.  Nor was it short selling.  It was forced selling.  It was the dumping on the market of hundreds of thousands of shares of stock held in the name of miserable traders whose margins were exhausted or about to be exhausted.  The gigantic edifice of prices was honeycombed with speculative credit and was now breaking under its own weight.”

“But the worst was still ahead.  It came [on] Tuesday, October 29th.  The big gong had hardly sounded in the great hall of the Exchange at ten o'clock Tuesday morning before the storm broke in full force.  Huge blocks of stock were thrown upon the market for what they would bring”

“The scene on the floor was chaotic.  Despite the jamming of the communication system, orders to buy and sell – mostly to sell – came in faster than human beings could possibly handle them… when the closing gong brought the day's madness to an end the gigantic record of 16,410,030 shares had been set.”

“The Big Big Bull Market was dead.  Billions of dollars' worth of profits – and paper profits – had disappeared.  The grocer, the window-cleaner, and the seamstress had lost their capital.  In every town there were families which had suddenly dropped from showy affluence into debt.  Investors who had dreamed of retiring to live on their fortunes now found themselves back once more at the very beginning of the long road to riches.  Day by day the newspapers printed the grim reports of suicides”

“Nor was that all.  Prosperity is more than an economic condition; it is a state of mind.  The Big Bull Market had been more than the climax of a business cycle; it.  had been the climax of a cycle in American mass thinking and mass emotion.  There was hardly a man or woman in the country whose attitude toward life had not been affected by it in some degree and was not now affected by the sudden and brutal shattering of hope.  With the Big Bull Market gone and prosperity going, Americans were soon to find them-selves living in an altered world which called for new adjustments, new ideas, new habits of thought, and a new order of values.  The psychological climate was changing; the ever-shifting currents of American life were turning into new channels.  The Post-war Decade had come to its close.  An era had ended”

FFredrick Lewis Allen was the editor-in-chief of the famous Harper’s Magazine, a biographer and historian of American society.