I like Richebacher, but I am not impressed with his analysis. He's probably dumbing it down for the lowest common denominator of his audience, but it's not very helpful to use words like "reckless", "frenzy", "mania", "monstrous," etc. other than to scare people.
He spouts the same line you read in the papers - the Great Crash in October and November 1929 destroyed $25 billion in assets. Yet, when you analyze that, it's simply not true. As we have discussed before, when you multiply the total market cap of a stock times the closing price of a stock, that doesn't tell you anything as to whether anyone made or lost *money.* If I buy 100 shares of XYZ for $10, go on an extended vacation to a secluded desert isle, and while I am gone the stock runs up to $100 and then plummets back to $10, I have not "lost" anything. At the end of 1929, shareholders were *ahead* of where they were at the beginning of 1929. In the meantime, every dollar that a stock sold for wound up in someone's pocket, and no one ever accounts for that, either.
One of the curious things I am reading, I don't know if it's true, but I've read it several places, is that no one has yet done a really good analysis of the events of 1929. Everyone starts after the crash.
The paragraph Richebacher lifted from the League of Nations report:
>>To cite from a contemporary report by the League of Nations about this development: "The credit expansion after 1927 in the United States went largely to the financing of speculation. According to available statistics, no less than 86% of the total increase in bank credit was used for that purpose. Thus was laid the foundation for the stock-exchange boom which followed."<<
This statement, believe it or not, is simply hearsay. No one actually sat down and analyzed the data. And they don't tell you how they define "speculation." You may think you know something after you read this paragraph but you don't.
The dirty secret of scholarship in the social sciences is that, like all scholars, they must publish or perish, but no one ever goes back and checks their facts. So if you cite something that looks authoritative, it passes muster. Quite unlike hard science, where your studies must be able to be replicated by other scientists, and you must show the work you did. It's shoddy, and irresponsible. Pure sensationalism. He gets an "F" for scholarship. |
