So, last week we closed with the Dow Jones (hereinafter, DJ) at
the 226.35 level, end of September, 1950, and with the U.N.
forces having launched their counterattack against the North
Koreans after almost being pushed into the sea. The market
didn”t react severely to any of the future events in the “police
action” and admittedly, this two-part series I”m running may not
have much relative value in terms of lessons to be learned. But
alas, it”s history.as well as market history. What happened,
happened.
On October 7, 1950 (DJ 231.81), the U.S. won approval from the
U.N. General Assembly to allow MacArthur to push on and try
to reunify Korea. Truman, concerned about hints of intervention
by Red China, flew to Wake Island to meet with MacArthur on
Oct. 15th (DJ 227.63). MacArthur discounted these reports, but if
Red China did act, he predicted “there would be the greatest
slaughter.”
That same day Peking announced that China “cannot stand idly
by.” On Oct. 20th (DJ 230.88) U.N. forces entered the North
Korean capital of Pyongyang. On Oct. 26th (DJ 226.65) advance
units had reached Chosan on the Yalu River border with China.
MacArthur predicted victory by Christmas. But on the night of
Nov. 25th (though others peg it at Nov. 27th.DJ 228.61 after
having been at 234.96) Chinese “volunteers” counterattacked,
with massive “human wave” attacks, with the support of tanks
and planes, turning the tables on the U.N. forces, sending them
into a desperate retreat just at the onset of winter. [The DJ slid to
222.33 by Dec. 4th].
MacArthur blamed the administration for the setback, saying that
they were requiring that he conduct a limited war. He proposed
air raids on China”s sanctuary in Manchuria, a naval blockade of
China and an invasion of the mainland by the Taiwan
nationalists. [The DJ finished 1950 at 235.41]
Truman was against leading the U.S. into the “gigantic booby
trap” of war with China and soon the U.N. forces rallied. By Jan.
1951 (1/30, DJ 249.58) U.N. troops under General Matthew
Ridgway finally secured their lines below Seoul and then
launched a counterattack that in some places carried them back
across the 38th parallel in March. When Truman seized the
chance and offered negotiations to restore the prewar boundary,
MacArthur undermined the move by issuing an ultimatum for
China to make peace or be attacked. Truman had had enough.
On April 5th (DJ 250.32), on the floor of the House, the
Republican minority leader read a letter in which MacArthur
criticized the president and said that “there is no substitute for
victory.” Truman later said civilian control of the military was
now at stake. With the backing of the Joint Chiefs of Staff
Truman fired MacArthur on April 11th (DJ 249.76) and replaced
him with Ridgeway.
Truman”s action ignited an immediate uproar in the country and
MacArthur returned home (for the first time since 1937) to a
tumultuous reception. On April 19th (DJ 254.92) he gave a
historic speech to Congress. “Once war is forced upon us, there
is no alternative than to apply every available means to bring it to
a swift end. War”s very object is victory.Why, my soldiers
asked of me, surrender military advantages to an enemy in the
field? I could not answer them.” MacArthur ended his speech,
recalling a barracks ballad of his youth, “which proclaimed most
proudly that old soldiers never die, they just fade away.” And
like the old soldiers of that ballad, he said, “I now close my
military career and just fade away, an old soldier who tried to do
his duty as God gave him the light to see that duty.”
General Omar Bradley, chairman of the Joint Chiefs of Staff,
later said that MacArthur”s strategy of war with China “would
involve us in the wrong war at the wrong place at the wrong time
and with the wrong enemy.” While Americans liked MacArthur
and wanted to win, Bradley”s logic was persuasive. In fact a
Gallop poll taken at that time showed that 69% of the American
people supported MacArthur but only 30% wanted a wider war
with China.
On June 24, 1951 (DJ 245.30) the Soviets proposed a cease-fire
and armistice along the 38th parallel; Ridgway was inflicting
severe losses at the time and China and North Korea responded
favorably. Truce talks started July 10, 1951 (DJ 250.00) at
Panmunjom only to drag out another two years while the fighting
continued. The chief snags were prisoner exchanges and the
insistence of the South Korean president on unification. A truce
was finally reached on July 27, 1953 (DJ 268.46.or just a 7%
gain in the two years while the talks were going on). No final
peace conference took place. The U.S. lost 33,000 soldiers on
the battlefield, 54,000 overall. South Korean casualties
numbered around 1 million and North Korea and Chinese
casualties stood at 1.5 million.
Finally, it”s interesting to note that it took until November 23,
1954 for the Dow to exceed the 1929 pre-crash high of Dow 381
set on September 3rd of that year.
[Primary Source: “America: A Narrative History” by George
Tindall and David Shi]
Brian Trumbore
