Buried on page 21 of The Sun, on November 25, 1936, a brief announcement informed the readers that Michael J. Meehan, a one-time owner of eight exchange seats, was in a private sanitorium. Meehan, completely wiped out in the 1929 Stock Market Crash, lost over 25 million dollars, depleting much of what he earned between 1920 and 1929.[1] His beginnings were humble, and he worked his way from selling tickets on Broadway to owning eight exchange seats and gaining the reputation as one of the most adroit market manipulators.[2] Meehan’s clever strategy for manipulating the market included gathering a pool of investors who would choose a company on the exchange. They then would buy and sell stock in that company, making it look like there was great interest in the company. This would increase the stock price, and they could sell high after buying low. Even after the Securities and Exchange Act was passed in 1934, Meehan manipulated the markets. In 1935, Meehan was summarily investigated by the regulators and found to be guilty of manipulation.[3] Yet again, he lost everything and sought respite in a sanitorium a year later.
Meehan was among many who speculated during the Roaring Twenties, enjoying the tremendous financial boon. Access to electricity offered a host of new appliances that homeowners could purchase. Gone were the days of the necessity of having money to hand when purchasing. Banks now encouraged people to buy on credit, and the more they bought, the more orders for production came in, creating a spending and production cycle built on credit. When people saw men like Meehan, who began his life selling Broadway tickets and now had a fortune of 25 million dollars, they took risks and speculated with the Stock Market. Banks did, too, and did it with their patrons’ money. Everyone was in on the game of money-making. And then it all came to a halt…. for a time.
The Austrian School of Economics, founded in 1871, favors a hands-off approach for the government and economics. This certainly sheds light on the 1929 crash, laying the blame at the feet of the Federal Reserve and its inflationary credit schemes.[4] With the creation of the Federal Reserve in 1913, Wall Street and the banks had a guarantee that if anything went wrong, they would be bailed out. Furthermore, the Federal Reserve also could inflate the currency. Benjamin Strong, the governor of the Federal Reserve in New York, enjoyed uninhibited carte blanche when it came to promoting an increase of money and bank credit into the economy of America. The result was prices driven higher than they should have been and booms in the stock and real estate markets.[5] Senators in 1933, attempting to find out why the 1929 crash happened, blamed the banks who enriched their coffers off of stocks before the crash.[6] Sadly, they could not, or would not see the truth in front of them, that the organization they created to stabilize America’s economy supposedly was the source of its chaos.
Murray Rothbard, an Austrian School proponent, states that before 1929, when crashes occurred, the economy re-balanced within the year. But 1929 was different. According to Rothbard, Herbert Hoover, the President at the time of the crash, was not a laissez-faire president and instead was a New Deal President. Hoover believed in big government, and “Before he assumed office, Hoover determined that should a depression strike during his term of office, he would use the massive powers of the federal government to combat it. No more would the government, as in the past, pursue a hands-off policy.”[7]Therefore, because of this Keynesian economic policy, Hoover, followed by Roosevelt, sunk America into the Great Depression with no hope of relief.
Ten years after the great crash, one of FDR’s dearest friends, Treasury Secretary Henry J. Morgenthau Jr., testified before the House Ways and Means Committee, stating, “I say after eight years of this Administration we have just as much unemployment as when we started… And an enormous debt to boot.”[8] It is no wonder America was still plunged into a Depression ten years after the 1929 crash. FDR’s New Deal crippled ingenuity, entrepreneurial spirit, reduced property rights[9] and did not deliver the jobs Americans desired. The opportunity to invest in the economy was nonexistent. Through incremental net increases, the government inched more control away from the citizens and the banks. This is known as “ratcheting.”[10]
Through the decades, citizens have been taught that America joining World War II was the answer to getting America out of the Great Depression. The Austrian Theory does not agree with this view. War is never good for the economy. Von Mises says war prosperity is akin to wealth due to a plague or natural disaster.[11] Instead, the Austrian Theory teaches that thanks to reduced regulations, which had become so onerous during the New Deal, Americans could discover their entrepreneurial spirit again, and a sense of freedom enveloped the land.
[1] “Michael J. Meehan in Private Sanitorium: One-time Owner of Eight Exhange Seats Wiped Out in 1929 Crash.” The Sun. Nov. 25, 1936. Pg. 21.
[2] Matthew Partridge. “Great Frauds in History: Michael Meehan’s Market Manipulation.” Money Week. December 8, 2020. https://moneyweek.com/economy/people/602420/great-frauds-in-history-michael-meehans-manipulation
[3] Ibid.
[4] Murray N. Rothbard. “Reliving the Crash of ’29.” Mises Daily Articles. December 21, 2009. https://mises.org/library/reliving-crash-29
[5] Ibid.
[6] “Flow of Bank Loans to Wall Street Traced: Data Sought by Senators on Stock Buying Prior to 1929 Crash.” The Washington Post. Nov. 17, 1933. Pg. 3.
[7] Ibid.
[8]David Gordon. “The Disaster Called the New Deal.” Mises Daily Articles. December 9, 2008. https://mises.org/library/disaster-called-new-deal
[9] Art Carden. “World War II Did Not End the Great Depression.” Mises Daily Articles. March 29, 2011. https://mises.org/library/world-war-ii-did-not-end-great-depression
[10] Ibid.
[11] Ibid.
Beginning To End: All Things History 