In many ways the events surrounding the period just before and early on in the Great Depression seem to bear a striking similarity to what we have seen recently.Maybe the events of this last year are simply an example of the typical ebb and flow of interactions between private institutions, the government and market participants during times of economic stress and uncertainty and that it’s only the reaction to turmoil that is similar.
Or, more pessimistically, Maybe through a somewhat different path and to a different degree the economy has found itself in essentially the same precarious position as it had been in during the initial stages of the Great Depression and a similar unwinding is now underway.
Or, more optimistically, maybe things just seem similar but they are in fact very different and we are now seeing nothing more than a typical recession, albeit with the potential to be a bit more severe than we have known in recent times.
Obviously looking back at history in order to gain some visibility on the future has its limitations and couldn’t possibly provide a perfect parallel to today’s circumstances but in some respects it appears that some things just never change.
I recently began reading “The Great Depression” by David A. Shannon and found that this collection of newspaper articles and firsthand accounts brings the feeling of that tumultuous era alive and further reveals startlingly similar circumstances and events to what has been seen recently.
I’ll provide a full review of the book when I’ve completed it but for now here are some points of interest:
As reported in the New York Times, October 25 1929:
“In the very midst of the collapse (note: before and after an apparently unscheduled meeting of the New York Federal Reserve) five of the country’s most influential bankers hurried to the office of J.P. Morgan & Co., and after a brief conference gave out word that they believe the foundations of the market to be sound, that the market smash has been caused by technical rather than fundamental considerations, and that many sound stocks are selling too low.”
The Stock Exchange firm of Merrill, Lynch & Co., in a message advising customers to keep accounts well margined without waiting for a direct request, said that investors “with available funds should take advantage of this break to buy good securities”
From an account written by economic historian Broadus Mitchell:
Public statements at the new year on the business outlook for 1930 damaged more reputations of forecasters than they bolstered. In the midst of the stock market debacle two months earlier, prominent persons whose word was apt to be taken – bankers, industrialists, economists, government officials – had declared their confidence in stocks, not to mention underlying business soundness.
Secretary of the Treasury Andrew W. Mellon committed himself blithely: “I see nothing… in the present situation that is either menacing or warrants pessimism… I have every confidence that there will be a revival of activity in the spring and that during the coming year the country will make steady progress.”
The White House reported the President as considering “that business could look forward to the coming year with greater assurance.” Willis H. Booth, president of the Merchants’ Association of New York, saw “no fundamental reason why business should not find itself again on the upgrade early in 1930.”
Secretary of Commerce Robert P. Lamont contented himself with listing the gains that the year 1929 as a whole had registered over 1928, and with predicting prosperity and progress “for the long run.”
