The central question arising out of the break in world stock prices is whether the industrial democracies have sufficiently studied the record of the 1929 break and profited adequately from that study. One dissimilarity between the two historic events can be helpful. In 1929, the world economy was fragmented. Markets did not all do the same thing at the same time. There was a two-year gap between the decisive break in Wall Street on Oct. 24, 1929, and the collapse of the Kreditanstalt Bank in Vienna in 1931, which marked the beginning of worldwide depression. The world slid unevenly, and most experts now say unnecessarily, from Wall Street collapse to world depression.
This time, all stock markets did the same thing at the same time. This means that the governments in all of the industrial democracies have been alerted simultaneously to dangers ahead and to the urgent necessity to avoid the things that were done, or left undone, after the warning of 1929.
Thus we now have an opportunity that did not exist in 1929 for a cooperative effort to prevent a slide from stock market decline to a worldwide contraction of credit, trade, and consumer spending. All three happened after 1929 because there was no cooperation. On the contrary, each tried to insulate itself from what was happening in the other countries.
Washington's immediate reaction to 1929 was the Smoot-Hawley tariff, the highest protectionist tariff to that date. The Europeans responded in kind. International trade began to dry up. One damaging result of the fragmentation of response to the stock slide was the virtual end to loans to Germany. At that time, Germany was still trying to pay off war reparations, in cash. They were able to meet their payments so long as American banks, primarily, were loaning them money. German recovery from the war had been remarkable, but not enough to shoulder the reparations payments and maintain recovery. Germany went into the depression along with everyone else, only more so. Unemployment soon reached a higher level in Germany than even in the United States, where it reached approximately a third of the work force. Hitler's rise was a direct result of economic depression brought on by the lack of cooperative reaction to the stock market's decline.
The lessons that should have been learned are obvious. The channels of international trade must be kept open. The flow of credit must be maintained. Consuming power must be protected and encouraged.
The decline in consuming power preceded the stock market collapse of 1929. World War I had produced a higher rate of productivity throughout the Western world. This included labor-saving devices, such as cotton pickers and corn huskers.
By 1929, many basic commodities were already being overproduced. Historian Samuel Eliot Morison, writing in the ``Oxford History of the American People,'' lists ``wheat, rubber, coffee, cotton, sugar, copper, silver, and zinc'' as being in surplus supply. He adds that the effect was intensified by ``bumper crops in Europe in 1929.''
Bumper crops, oversupply of commodities, labor-saving devices - all depressed prices, put people out of work, and led to a drastic decline in purchasing power. The underpinning of the Western economies was crumbling before the stock markets broke. When the break came, President Hoover told Congress that ``the fundamental strength of the nation's economy is unimpaired.''
Perhaps the most worrying incident of the week is that on Monday, as stock prices were tumbling the world over, the White House said: ``... The underlying economy remains sound.'' The underlying economy was anything but sound in 1929. Top economists have been saying for two years or more that today's underlying economy is anything but sound. Many see parallels between the economic problems of 1929 and today.
Lack of ability to recognize the many things wrong with the ``underlying economy'' in 1929 was one reason that governments were so slow to take the kind of actions that might well have staved off depression. Sheer ignorance, willful blindness, and political inability to act cooperatively all had their share of responsibility for the fact that the stock break of '29 was soon followed by one of the worst depressions in the world's economy.
This time the economies of the Western industrial democracies are so tied together, and their markets so easily linked by modern communications, that the stock market's warning hit them all on the same day. They all know that they must act promptly to head off a sequence of events that would repeat the story of the 1930s. And they all have at their disposal the knowledge of the things done and left undone. The worst of those was probably a refusal to see the need for honest recognition of the true state of affairs, and to proceed to remedies.
This time, in spite of the inevitable reassuring statement from the White House, there was a summons to the leaders of the Congress for consultation. And we did have a statement from Sen. Robert Dole, the Republican leader in the Senate, that the times call for ``leadership.''
As of this writing, new steps have not been taken for greater cooperation with the Western allies and Japan. The story of 1929 makes that the most essential first step toward avoiding a repetition of the story of 1929.