Stock Market Crashes Through the Ages Part I 17th and 18th

Centuries

Submitted by Pivotfarm on 06/04/2013 11:32 -0400
http://www.zerohedge.com/contributed/2013-06-04/stock-market-crashes-through-ages-%E2%80%93-part-i-%E2%80%93-17th-
and-18th-centuries
Bulls and Bears. Its all about predicting when that upturn or that downswing in the market
is going to take place and when you need to sell or buy that stock to hit the jackpot and
make the millions. People have been doing it for centuries and that doesnt look like it is
going to stop right now. There have been dozens of financial crises over the centuries and
each of them has had an effect on the lives of people to varying degrees.
Heres the low down on what the biggest and the worst, the bad, grizzly bears that have
affected our lives and shaped the way that we deal with the next one (if we learn from our
mistakes that is!). The best of the bunch of world stock-market crashes from the 17th and
18th centuries are as follows. But, they might be old, they might be gone, but youll be
surprised that we havent learnt a lot from our past mistakes. We did surprisingly crazy
things and we are still doing some of the very same things today. Lets take a peek into the
past and see what was and what wasnt the thing to do!
1. Kipper and Wipper
1623
In German, known as the Kipper und Wipperzeit, or the Tipper and See-saw. It is the first
real financial crises and downturn in the economy and it took place at the start of the Thirty
Years War (1618-1648). There was no effective taxation to finance the war and so the Holy
Roman Emperor started to debase currency to raise revenue. The name of the crisis stems
from the scales that were used to identify coins that had not been debased. They were
removed from circulation and then melted down. Mixing them with baser metals (copper,
lead or tin) meant that they could be reissued with a lower value of currency. Modern
Quantitative Easing methods before QE had even been invented! Abenomics in the
17th century! We think that we invented everything, dont we just?
Trouble was: the currency became so devalued that nobody wanted it anymore. Riots
occurred, soldiers refused to work if they werent paid in real, non-debased money and even
the state came a cropper, when it started getting the money back after collecting taxes. The
coins became absolutely worthless and were nothing more than tidily-winks for kids in the
streets. Is this what is in store for us?
2. Mississippi Company Bubble
1720
Bubbles usually burst and the Mississippi Company was no exception.
However, the Mississippi Bubble wasnt technically a bubble at all. It was inflationary
pressure fueled by excessive money supply and failure of policies implemented to control
money supplies.
The Mississippi Company was a business corporation that had a monopoly over the French
colonies in the Americas. John Law set up the Banque Gnrale Prive (or the General
Private Bank) in 1716 and developed the circulation of paper notes as a means of payment.
Law was a Scot that believed that money did not constitute wealth at all and that it was
merely a means of exchange between companies and individuals.
He was avant-garde in that he believed that the wealth of a nation was dependent on trade
between countries. He was appointed Controller of General Finances for Louis XV. The bank
that Law set up was the first central bank of France and its capital was made up of
government bills. The bank issued more notes than it should have done and it didnt have
enough coinage to represent the sums that were being printed.
Law was a notorious alcoholic, so maybe he was drunk half the time. He was also a
gambler. He believed that coins should be gotten rid of and that we should only use paper
money. He also believed that shares were a form of money, even the most superior form of
money that existed, since they generated dividends. The printing of money for Laws French
bank resulted in economic inflation. The value of the paper currency ended up getting
halved. Law was an excellent modern-day marketing man too. He made everyone believe
(via gross-exaggeration) that Louisiana was much wealthier than it actually was. Smooth-
talker, obviously.
The notes issued by the bank were used to pay dividends to shareholders that were
investing in the Mississippi Company. Except, the French had to admit after a while that
they didnt have the coinage to back it all up. Sounds like the UK Financial Rock (amongst
many others that could be mentioned) meltdown in 2007 when people started queuing
outside the banks to withdraw their money en masse. That bank run was the first that took
place in Britain for 150 years! Maybe, they should have heeded Laws warning and got rid of
the coins in circulation altogether.
Things came to a head for the Mississippi Company in 1720 when the bubble burst in Laws
face. People rushed to try to convert their paper notes to coins and the bank foreclosed on
payment. Bank notes had increased by 186% just in one year. Inflation was rampant and
prices were doubling. Shares increased in price, but not so much through demand as the
result of inflation. Law had to devalue the Banque Gnrales notes by 50% to deal with the
inflationary pressure. Shares plummeted from 10, 000 livres to 1, 000 livres per share in
1720. By 1721, they were only worth 500 livres. The result was that investors lost millions.
France plunged into economic depression, and brought half of Europe with it. It also laid the
foundations, as usual, for social upheaval, revolution and struggle. The French Revolution
was built on this.
Louis XV got rid of Law. He was exiled, poverty-stricken to Venice where he died in 1729,
penniless. Luckily he believed that money wasnt wealth, just a means of exchange. But,
isnt that the way. Choose the scapegoat, exile them and then carry on regardless. We are
still doing it.
3. South Sea Company
1720
The South Sea Company was a joint-stock company that was founded just a decade before
it went broke bringing with it the economy of the UK. However, its intention was to reduce
British national debt originally. The founders were found guilty of insider trading and they
brought about the collapse of the shares of the company and ruined the national economy
even further. They knew when the debt was going to be consolidated, and so they bought
that debt in advance to make huge profits. It was bribes galore as the MPs were given back-
handers to make sure Acts of Parliament went through to support their scheming. A
modern-day insider trading scandal.
We are still doing it today. Preet Bharara, New York US Attorney, has charged 72 people
over the past three years with insider trading. Some of the most famous cases to date are
the Enron, Jeffrey Skilling case, for instance. Skilling (former President of Enron) was
convicted in 2006 of insider trading (as well as 18 other charges). He ended up getting
sentenced to 24 years behind bars and fined the hefty sum of $45 million. He appealed to
the Supreme Court in 2010 and it went back to the appeals court for review. Or, in May
2011, Raj Rajaratnam was convicted of having tried to use insider information concerning
the Galleon Group. It could have brought in the tidy sum of $20 million had he not been
arrested, causing the subsequent falling apart of the group.
The South Sea Company saw the value of its shares rise rapidly over a very short period of
time, mainly due to rumors, once again. In January 1720 the price rose to 128. A month
later, it was worth 175 per share. By March, it stood at 330. By the end of the year a
share was worth more than 1, 000. People were scrambling to get hold of the shares and
make money, believing that the price would rise endlessly. Politicians were in cahoots with
the founders of the company. They were sold shares (that they never actually paid for) and
then they waited until the price increased and sold them back for a profit.
The company benefited from the legitimacy of the prestigious names that were investing in
the company. It was all about image, even back then. The bubble came to an end as people
became aware of what was taking place. The stocks fell to 150 and ruined thousands. It
was put forward in the House of Commons that the bankers should be tied up in sacks with
snakes and thrown into the Thames. It never happened (obviously), but the estates of the
founders were confiscated and used to pay for relief funds of the victims. Ministers were
prosecuted and the Chancellor of the Exchequer of Great Britain (John Aislabie) ended up in
prison.
4. Bengal Bubble
1769
The Great East Indian Crash took place in 1769 as a result of overvaluation of stock of the
East India Company. This happened over a twelve year period between 1757 and 1769 due
to attacks on the companys holdings in Bengal, India and the famine of 1770. All of this
was coupled with the collapse of the textile industry in the province of Bengal.
As a result stocks of the British East India Company fell from 276 in December 1768 to
122 in 1784. Thats a fall of 55% in the value of the stocks. There is even a Facebook page
you can like (if the fancy takes you). It turns out there are pages to like most things these
days, even events that turned out to be catastrophic for those that invested in them in the
18th century.
Back then the answer of the British government was to bail out the East India Company, but
that just acted as a catalyst to the companys demise and subsequent disappearance as
people lost confidence. Makes you think if todays bail-out techniques will do the same.
5. Panic of 1796-1797
1796
This was a series of downswings in the credit markets that caused recessions in the UK and
the United States. There was a land-speculation bubble that exploded in the faces of the
investors and the banking system in 1796 and as a result the Bank of England refused to
maintain specie payments (the redemption of US paper money in coinage (usually gold)).
The Bank of England was afraid that they were going to go bust and have insolvency
problems when there were too many demands by account holders to withdraw cash
deposits. The knock-on effect for the US and the UK was disflationary repercussions on the
financial markets.
The Panic of 1796-1797 revealed just how much the United States of America was
dependent on Europe for trade. It pointed to just how much interconnectedness there was,
even before globalization was thought up. Things havent changed much. It was thanks to
this panic that the Bankruptcy Act of 800 was established to form a framework whereby
debtors and creditors should reach a settlement for their common good. Theres always
something positive that comes out of the panics and bubble bursts, some might say.
These are just a few of the bubbles that burst in the 17th and the 18th centuries. They are
telling in that they reveal that we havent actually moved a long way from where we were
back then. We are still haunted by modern-day insider-dealing scandals; we still exile the
ones to blame in the hope that getting rid of them will erase the page so that we can start
again and the dirty deeds that made people rich in the high echelons of the company will be
soon forgotten. We still over-market and exaggerate, oversell and inflate prices. Then
suddenly, the prices drop as people pull out and the government tries to shore up the
bleeding wound with Elastoplast and first-aid bandages. But when the blood is pumping out
and theres a hemorrhage, sometimes, that doesnt do anything at all. Or, at least nothing
in the long term.
In the next installment, well take a look at the historical bubbles that burst in the
19th century.

Stock-Market Crashes Through the Ages
Part II 19th Century
By tothetick on June 13, 2013 in Bonds, Economic News Analysis, Featured, Forex, Stocks with 0 Comments
http://www.tothetick.com/stock-market-crashes-through-the-ages
Stock-market crashes saw the light of day more and more as the world became industrialized. The 19
th
century saw a
rapid increase in their numbers.
Theres money to be had at any time, whether the market is going up or down. But, its avoiding the downs and
pulling out before the things start to go haywire that is important. Or, at least, investing in whats good and whats
going to take a hike. But, how can you believe what people have to say? The only ones who are any good at selling a
rise when in actually fact its a fall coming are the marketing gurus themselves. They are more common than we
might think. Its no modern invention either. We are past masters of selling what doesnt exist. Selling make-believe is
what makes people happy, until it takes a turn for the worse.
Some might say that predicting the downturn in the market can be done. You can develop algorithms and have
sophisticated math, analyzing stock movements in multiple countries at the same time with split-second data churning
out. You can use whacky ways to predict whats happening if you cant tot up the equations and come to a
decision, like seeing how many toothbrushes are sold in the economy (as people tend to stop going to the dentist
when there is a crisis). Although they are more likely to reveal whats actually taking place, than what is going to
happen just round the next corner.
Use as much economic forecasting as you like but the market wont react always how you expect it to. We all know
that. If it were an exact science, nobody would be poor. If it were a science at all, we would all be damn wealthy,
wouldnt we?
But, looking at what happened in the past sometimes helps us see what we are still doing today. We didnt invent
everything and we might think that we are high-flyers. But, somebodys been there, done it and seen it all before. The
19
th
century was the industrialized world at its first beginnings. Trade, transport, better communication and money-
making were high up on the agenda.
Here are the best (or the worst, depending on which side of the fence you are sitting) examples of stock-market
crashes of the 19
th
century from the mammoth list that could be mentioned. The majority took place in the USA, which
was at the heart of industrialized prowess at the time; a place where money could be made hand over fist, but where
it could be lost twice as quickly. The John-Dos-Pasos world of disillusion and hope of classes in the race to become
rich and somebody, a household name:
Panic of 1819
If you were told that the Panic of 1819 was due to the issuing of paper money and over-speculation of land, then you
might have the impression that we are back in 2008-2012 and the financial crisis and the quantitative easing methods
of today. But, no! The Panic of 1819 was due to the fact that Britain and France had been at war for decades, even
centuries. They both had a need for US-produced goods and in particular agricultural products were very much in
demand. Thanks to the warring between these two countries, the United States was able to become a major supplier
and it prospered. However, when war ended things took a dive for the US. Europe was no longer in need and there
was a bumper crop in 1817 in Europe leaving the USA in the lurch.
Americans had been buying up land at rates that had never been seen so as to produce in what looked like a
booming industry.
In 1815, 1 million acres of land were sold off to the people.
By 1819 that had increased to 3.5 million acres.
All of it, of course, was purchased via loans. As things took a nose-dive, the people were unable to pay back their
loans. Sounds like the credit crunch and the sub-prime crisis.
You would have thought that we would have learnt our lesson back then, wouldnt you? But, no, we did the same
thing: lending to people in times of economic boom, even to those that are going to be unable to pay it all back. The
banks ended up demanding immediate repayment so they didnt end up losing out. Sound familiar?
Prices of agricultural products were plummeting while the plantation owners were over-producing due to having
bought up too much land.
Land prices fell and brought the economy down as the banks called in those loans.
Bank credit was restricted, loans were cancelled and the Bank of the United States started printing money to deal
with the lack of funds.
The printing presses went into action and the rest is history. Almost exactly what has happened today, isnt it? Didnt
the people who decide study the Panic of 1819?
It was all down to a chain of events, the war between two countries, the reliance on another and suddenly when they
are no longer at war they do a runner leaving the country that helped them out to do their own thing. But, isnt all fair
in love and war?
Perhaps the only good thing that came out of the panic was the understanding that there had to be some sort of poor
relief for the people that were left destitute and the US education system was also created.
Panic of 1837
It was the USAs trading relations with Great Britain that caused the panic of 1837 to take place in the US once again.
Those Brits have a lot to answer for, I hear you say. They were economic leaders in the world (back then) and what
they did had a great effect on what the rest of the world either did or what happened to others. Secondly, there were
few trade barriers and that meant that the effects of liberal economics with little restraint based purely on supply and
demand meant that changes were made almost immediately and put into effect.
The story goes like this.
Britain was suffering from a slump in its agricultural production and ended up relying heavily on the USA, especially in
terms of cotton and crops.
The US agricultural industry was booming and so British investors placed their money where they were going to get
the best returns.
However, they didnt bank on the fact that the Bank of England would increase interest rates (from 3% to 5%), in an
attempt to replenish their diminishing reserves.
The money that had been invested in the US by the British investors suddenly flowed back into the coffers of the
Bank of England.
The US was left only with the choice to do exactly the self-same thing in a copy-cat scenario.
A bit like bailing out the banks in the financial crisis. You start one and then everybody has to do it, dont they? Or if
you start baling out one country suffering from financial instability and the consequences of rising debt, then you can
never let up and you cant say no to the others. Then you are really done. Isnt that where we are at now?

Bank of England
The US raised interest rates and there were restrictive credit policies. Money was in short supply and printing presses
started up again to inject money into the economy. Politicians and Bank of the United States officials refused to make
public addresses and people buried their heads in the sand thinking it would blow over.
Cotton prices shot through the roof and so did land prices. The effect was almost the same as in the 1819 panic: land
prices and inflation in general. The result was catastrophic for the USA and ended up going well into the mid-1840s.
Panic of 1857
The 1857 panic is commonly known as the worlds first global financial crisis. By the 1850s, travel had gone through
great changes. Railroads were already at their height of use and transport in trade was faster and better than it had
ever been before.
Once again, it started in Britain at the time. Looks like Britain was the USA of yesterday, the financial-crisis instigator
of the world at the time. Tough to carry that burden on your shoulders, but one saving grace is that people forget who,
why and when very quickly just as soon as the next crisis comes along. Otherwise we wouldnt be repeating history
over and over, would we?
The British government in 1857 did (and succeeded) everything in their power to get around the Peel Banking Act of
1844, requiring that gold and silver back up the money that was in circulation.
The panic that ensued in Great Britain spread rapidly to the US and it was the Ohio Life Insurance and Trust
Company that caused the triggering of the panic in 1857 in the US.
It was all down to fraudulent activities of the banks executives that there was a bank-run in 1857.
The bank suspended activities after incurring losses of $7 million.
They had lent too much money to railroads in the conquest of the west.
However, it was in 1857 that the flow of people to the west had considerably slowed down.
They had over-lent to railroad companies and they didnt have enough gold or silver to back it up, just like in Britain.
The value of land fell, the railroad securities disappeared.
The banks went into meltdown.
Once again, the banking system had lent too much in times of economic prosperity, and they didnt have enough to
back it up. The railroads also went into meltdown and so did the farmers. Land prices depreciated and crops became
almost worthless (grain hit the floor at $0.80 a bushel, spiraling from the dizzy heights of $2.19).

Railroads in the USA
It was the Panic of 1857 that partly resulted in the American Civil War a few years later. The north had suffered
immensely from the drop in prices. The south had not suffered quite so much. The south became stronger in the
relationship between the two parts of the USA, but tensions grew to the widening disparity between the wealth and
the problem of slavery that was central to their dispute.
Panic of 1873
This time it was another world recession that became the first one that was known as the Great Depression until an
even greater one came along in the 1929 and then it was relegated to the back-burner, forgotten. It was a depression
that was triggered by Germany this time and their decision to get rid of the silver standard. It put an end to Great
Britains hegemony in the world.
Bank reserves had been put under a great deal of strain from money that had been lost in the construction of railways
as well as due to speculative investments and property-sector losses that hit hard. The railways were the dot com
bubbles of the 1990s and 2000s. Massive investment, euphoria, then a pin prick, and it all deflated.
The German decision to stop using silver to mint coins resulted in a fall in prices in the USA, where most of the silver
was exported from at the time. Due to the fall in demand, the Coinage Act was passed and meant that the US used
the gold standard. Silver lost even more in price.
The Germans instigated the move away from liberal free-market policies towards ones that were more
conservative.

Otto Von Bismarck
Bismarck as Chancellor nationalized industries and even created the social security system to provide workers with
pensions so that they state wouldnt have to pay for them at retirement age (which was later exported all around the
world, until it became too much for us to finance).
Conclusions
The panics happened every twenty years and then towards the end of the 19
th
century they accelerated closing the
gap between each panic as we became more industrialized, more dependent on travel, transport and communication
became faster and faster. There were other panics that occurred in 1884, then again in 1893 and 1896. Panic was
synonymous with the world that the 19
th
century had wafted in on the railroads that they were building. But, it wasnt a
patch on what the 20
th
century had in store as the panics and crashes became more and more recurrent.
So, are there reasons why the stock markets created so many bubbles that bust in the faces of our 19
th
-century
ancestors? That was probably because there was a major rise of the middle-class in the 19
th
century. It wasnt just
the select very few that were from the higher echelons of society that were going into business. Making money, rather
than inheriting it was the order of the day for the first time in the 19
th
century. The Industrial Revolution had brought
entrepreneurship into the living rooms of the middle classes on a steam train. It had opened doors in communication,
transport and energy. There were opportunities to be had in every sector and there were at last more than just that
select few who were ready to make a buck. There was also reduced interference by the state and the beginnings of
the forging of the system in which we live today. Risks were taken. Whether they were calculated risks or not is
entirely another matter? But, it was the 19
th
century when industrialization meant opportunity and yet still at the same
time a working class that was not adequately organized to defend itself or demand more than the entrepreneurs
allowed them to.

Thomas Edison
The list of entrepreneurs that stands witness to the 19
th
centurys success is endless. The Edisons and the
Carnegies, the Rockefellers and the Vanderbilts are still today almost as strong as household names, arent they?

Cornelius Vanderbilt
What reasons do you think could explain the stock-market crashes of the 19
th

century?
Take a look at the Stock-Market Crashes Through the Ages Part I 17
th
and 18
th
centuries.
In the next installment, well take a look at the historical bubbles that burst in the 20
th
century.
Stock-Market Crashes Through the Ages
Part III Early 20th Century
By tothetick on June 18, 2013 in Bonds, Commodities, Economic News Analysis, Education, Featured, Stocks with
0 Comments
http://www.tothetick.com/stock-market-crashes-through-the-ages-part-iii-20th-century
The 20
th
century could be categorized as THE century when communications took off and we started living in each
others pockets. Lives had been ruined by war, trouble and strife. Wealth had been redistributed beyond belief. There
were no longer just a few that were making the profits, but there were growing classes of people that wanted
recognition.
They might not have got it until the second half of the 20
th
century, but the way things unraveled in the first half meant
that people were not prepared to sit back and let things go into the hands of the rich landlords and the factory owners.
Rights had been acquired and they were being demanded. Women, workers, whoever they were, everybody wanted
a piece of the cake. It wasnt until the second half of the twentieth century that dabbling and buying shares, thinking
you could strike it lucky and make a million, was going to become part and parcel of most peoples lives. Maybe thats
the whole problem. People betting on investments as if that was nothing more than a couple of whippets running
round the race track on a Saturday afternoon, bag of chips in one hand and a pint of ale in the other. Flat cap and
everything.
The markets dont act like that. But, we allowed people to think that they could make a quick million bucks by
investing what they had hidden under the mattresses for decades. Why did they need to worry anyhow, social
security had been invented, we were looking after the destitute and not locking them behind the gates of Victorian
workhouses and mental asylums. There was a safety net that had been created in society by the advent of the
National Health Services (1948 in the UK) that we pride ourselves for inventing or the retirement schemes that we
say will make pensioners lives better (Dankeschn, Mr. Bismarck).
As time went on in the 19
th
century the number of stock-market crashes increased.
That number increased even more in the 20
th
century. Information was accessible. Telecommunication technology
was entering our lives as a daily piece of equipment. I could start to be absent and yet present at the same time. I
didnt have to be literally somewhere physically; I could be there almost in person via the transmission of my voice or
an image. It was reserved for the elite at the start, but as the century progressed, it became more and more
democratized. Later in the century, it would be possible to be completely present, and yet physically absent and I
would be able to do it from the comfort of my own living room. Education was becoming more and more widespread.
Newspapers were being read even by those that had not been able to read in the previous century (total circulation
was at over 27 million in 1920 and households had papers delivered both in the morning and in the evening). Access
to information meant the learning of events almost in real-time.

Stock Markets: Interconnected
The 20
th
century saw an explosion in the number of stock market crashes. Here are a few of them. The ones that bit
us from behind as we scrambled out of the markets sometimes to be left without a cent. One thing about it all was
that the dream of the self-made man, the entrepreneur, the idea of striking it rich had really come into its own in this
century! This is just the first half of the 20
th
century!
1. Panic of 1901
We entered the 20
th
century with a panic. The turn of the century has always been equated with great change, either
good or bad. The Panic of 1901 was due to some extent to the fight for the control of the Northern Pacific Railway.

Stock Market: Edward Henry Harriman
The Northern Pacific was a transcontinental railway (1864-1970).
Edward Henry Harriman who was the Chairman of Union Pacific attempted at all costs to monopolize the railway
sector.
He attempted to buy stock en masse belonging to Northern Pacific Railway to take control of the company.
The NYSE was said to look more like a football field as the panic started and prices began to fall as people started to
sell in sheer panic.
The market crashed and brought down with it the majority of US railway companies (Burlington and Missouri Pacific,
for example).
The only one that was left still standing was the Northern Pacific. The run on their shares by Harriman had meant that
people were selling all other shares like they were going out of fashion and attempting to buy into Northern Pacific.
One companys loss became another companies gain and Northern Pacific increased by 16.5 points.
The crash spread to other companies. It brought the country into recession and was the first stock-market crash of
the 20
th
century.
2. Panic of 1907
The Panic of 1907, is the Bankers Panic. The NYSE dropped by 50%. The reasons? Lack of confidence in the
market and retraction of market liquidity by NY banks. The banks had lent out too much money in an attempt to
purchase the United Copper Company and this caused loss of confidence and bank runs ensued.
The US had no central bank that would act as a lender of last resort at the time. President Andrew Jackson had let
the charter of the Second Bank of the United States lapse in 1836. Money supplies fluctuated only in line with
agricultural cycles. Money left NY in the autumn to purchase harvests and the only thing that made that money come
back was a raise in interest rates.
J.P. Morgan shored up the banks and bailed them out; otherwise there might have been an even worse situation.
There was an attempt to corner United Copper, by purchasing large quantities of the stock of the company in a bid to
be able to manipulate the price of copper afterwards.
Shares rose in the beginning from $39 to $52 per share. They reached $60 before they began to collapse.
Within just a few days, they ended up at $10.
J.P. Morgan had managed to shore up the banks for a while as they were suffering from lack of liquidity, but he was
unable to do so indefinitely. The bankers tried to call a press meeting to persuade the papers that they were
controlling everything. Even the city of New York needed $20 million otherwise it would go bankrupt.
Morgan said if people will keep their money in the banks, everything will be all right.
The banks were not willing to make loans (short-term) to brokers to carry out daily trading, worried that the stock
would fall even more. Prices fell as a consequence on October 24
th
1907. The President of the NYSE requested that
the stock exchange be closed early to halt more losses. Closing the NYSE would mean even greater loss of
confidence. So, J. P. Morgan decided to call the banks to a meeting. He requested $25 million and it was raised in 10
minutes flat! Not bad, really! But, it didnt stop the free-fall.
1907 caused the highest number of bankruptcies to that date in the US.
Production was estimated to have fallen by 11%.
Imports were down by 26%.
Even immigration dropped. The US was no longer the land of plenty (fall from 1.2 million immigrants to just
of a million in one year).
Unemployment rose to over 8%, whereas it had been at under 3%.
3. Wall Street Crash 1929
Probably the most famous stock market crash of the entire history of the economy (apart from the one that we are
living right now). The Wall Street Crash is also known as Black Tuesday. Since this date we have used Black days
throughout our stock market crashes (Black Monday in 1987, or Black Wednesday in 1992, for example).
Just like in the period that preceded the stock-market crash of 2008, there was a time of wealth, success, making
money, sandwiched in between World War I and just before World War II. The roaring twenties. Innovation,
dynamism, liberation, freedom.
Motion pictures abounded, the automobile became commonplace, electricity entered the homes of the middle-
classes. Culture and lifestyles changed drastically. Everything became possible. Modernity had arrived. Its strange
that the period that preceded the stock market crashes of the 21
st
century was also a time of great change. We had
invented and democratized communications to a point where we could carry it around in our pockets. We had
changed the way we accessed information and we had it at our finger tips like no other generation had had before via
Internet.
Speculation became the order of the day in 1929. The world investors were on a roll and it wasnt going to end.
Money could be had and it was short-time financial gain that was important. Making money and making it fast. But,
even though we might not always apply the same knowledge today, what goes up must come down.
On March 25
th
1929, it began with a mini-crash. This was only an omen of what was to come.
The National City Bank tried to shore up the losses by injecting $25 million into the market, stopping is descent into
hell. But, it was all temporary.
The USA was showing signs of waning economically. The steel market was on the slippery slope and construction
wasnt anything more than just sluggish. The peak had been reached.
There were already 20 million cars on the roads, for example in 1929 in the US. Automakers sold 4.5 million cars in
the US market alone in that year before the crash.
General Motors had a net profit of $248 million. But, the peak had been reached, 1929 saw a dramatic drop. It was
only selling 1/3 of the cars it had been selling prior to the crash on the domestic market. It took ten years to
come back to the same level of profit and the number of car sales as in the period before the crash of 1929.
Although, it has to be said, even then, it was the shareholders that counted. The shareholders got dividends every
single year from GM between 1929 and 1939.
The roaring twenties had roared on from 1920 until 1929. The Dow Jones Industrial Average had been multiplied by
ten. Some even said that it was a permanently high plateau in September 1929. Very few are able to predict what
the market will do, but nobody today, at least, would suggest for a second that we are going to be on a permanent
high. That lesson has been heard loud and clear. The Dow jones reached its peak at 38.17 on September 3
rd
1929.
The London Stock Exchanged collapsed when a British investor (Clarence Hatry) became the most hated man in the
UK when he was jailed for fraud. Hatry was a London insurance clerk that had amassed immense wealth by
profiteering during WWI. He was about to merge his companies into a $40-million affair called the United Steel
Companies. But, the Stock Exchange Committee discovered that he had been borrowing ($1 million) without anything
to back it up.
It was on October 24
th
1929 that Black Thursday occurred. The NYSE plummeted 11%. Bankers managed to stop
the landslide and purchase large quantities of stock well above the market price in blue-chip companies. It halted the
free-fall. But, temporarily. The NYSE closed at -6.38 points.
The newspapers managed to report the news and Monday 28
th
became known as Black Monday.
Black Monday saw the DJIA spiral out of control. The US market lost 12.8% as trading opened up on the NYSE. It
plummeted 38.33 points and closed at 260.64.
Black Tuesday, October 29
th
had 16 million shares being traded. The DJIA fell 30.57 points, to just 23.07. It lost
11.7%. In three days of trading the DJIA had lost over 30%.
What went horribly wrong? Speculation and certainly the belief that things would never end. Brokers were lending 2/3
of the face value of stocks that they were purchasing and that meant that in 1929 there was more money that was on
loan than the entire currency in circulation in the USA ($8.5 billion). That smacks of something familiar when we
think about the sub-prime crisis. The belief that housing prices could never fall and that we would always be on an
upper, lending money left, right and center.
One other thing that we learned is that our worlds were interconnected. Falls in London, Tokyo and New York
happened at the speed of light in 1929. What one did the other followed suit with. Only 16% of the US population
had money invested in the stock market in 1929, but it was probably those that had the companies that employed the
people that worked. The knock-on effect was enormous.
But people like Joseph Schumpeter and Nikolai Kondratieff believed through their economic-cycle theories looking
at the way the market reacted that the 1929 crash was just acceleration in the cycle and it enabled moving towards
the next one.

Stock Market: Nikolai Kondratieff

Stock Market: Joseph Schumpeter

4. Recession 1937
Spring 1937 saw the US economy get back on its feet and the levels of economic activity were similar to pre-1929
ones. Unemployment was still relatively high, but that was nothing compared to the vertiginous heights of 1933
(25%!). In 1937 things went haywire for just over a year causing an economic recession in the US, with a knock-on
effect in the rest of the world.
Unemployment was at 14.3% in 1937. It increased to 19%.
Manufacturing output fell by 37%.
Spending decreased and incomes fell by 15%.
GDP fell by 11%.
Economists fail to agree on the reasons (nothing surprising) as to the economic recession of 1937. Depends where
you stand. If you are a Keynesian, you will believe that federal spending cuts brought about the recession, coupled
with increased taxation. If you are a Milton-Friedman man then its the money supply and the Federal Reserves
tightening of it that is the instigator.
The 1937 recession was called the Recession within the Depression.
Conclusions
Some might say that the benefits of what we have gained over the past century are far better than the relatively few
times that we had to wade through the nightmares on Wall Street and the Stock Market crashes that hit us full in the
face at times.
Some might say that it was worth it as the market generated the wealth on which we prospered in the 20
th
century.
But, they also resulted in depression, recessions and slumps. Recessions that brought about the rise to power of
some of the worst dictators that the world had seen.
Recessions that brought about a fight for greed and a closing in upon ourselves in protectionist fear. But, the 1
st
half
the of the century was nothing compared to the stock market crashes that were waiting in store for us once we would
become really industrially connected and inter-connected. When we went global, when we reduced our barriers,
when we travelled from point A to point B at supersonic speed, and when one push of a fat finger on a keyboard sent
millions across the other side of the planet.
Stock markets were going to run in the second half of the 20
th
century at supersonic, virtual speed. We would enter
the Big-Bang world of deregulation of the financial markets, abolishing fixed commission charges. But, behind the
big bang was a black hole