Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

492 Money, Bank Credit, and Economic Cyclesexpansionary growth in loans exerted a highly unequal effecton the productive structure and relative prices. Professor IrvingFisher was perhaps the most famous American economistat the time, and his comments were among those which moststood out. Fisher obstinately defended the theory that thestock market had reached a level (a “high plateau”) belowwhich it would never again fall. The 1929 crisis took him bysurprise and nearly ruined him. 100The New York Stock Exchange disaster occurred in stages.Between 1926 and 1929 the share index more than doubled,increasing from 100 to 216. The first warning appeared onThursday, October 24, 1929, when a supply of thirteen millionshares was met with an almost nonexistent demand, andprices collapsed. Banks intervened and were able to momentarilysuspend the fall, and prices dropped between twelveand twenty-five points. Though the panic was expected tocease over the weekend, the morning of Monday, October 28brought a new, unstoppable disaster. Over nine million shareswere offered for sale, and the market plunged by forty-ninepoints. The most devastating day was Tuesday, October 29,when thirty-three million shares were offered and the marketplummeted by another forty-nine points.At that point the depression hit and had the typical characteristics.More than 5,000 banks (out of a total of 24,000)failed or suspended payments between 1929 and 1932. 101100 On October 17, 1929, Fisher asserted: “Stocks have reached whatlooks like a permanently high plateau.” Anderson, Economics and thePublic Welfare, p. 210. On the fortune Fisher made developing a calculator,and his inability to theoretically explain events he experienced andto predict the stock market crash in which he lost practically everything,see Robert Loring Allen’s enthralling biography, Irving Fisher: A Biography(Oxford: Blackwell, 1993). Fisher’s major forecasting errors accountfor the damage to his academic and popular reputation and for the factthat his subsequent theory on the causes of the Great Depression wasnot taken very seriously. See Robert W. Dimand, “Irving Fisher andModern Macroeconomics,” American Economic Review 87, no. 2 (May1997): 444.101 Elmus Wicker, The Banking Panics of the Great Depression (Cambridge:Cambridge University Press, [1996] 2000).