America's Money Machine

The Crumbling of the Dikes 159
to stop rising so long as that type ofinflation lasted. But there is not the least
analogy between the conditions ofthat market and conditions now prevalent
at New York. Not only is our present Reserve note circulation $25 million
less than a year ago and not only, despite our gold importations, has the
twelve-months' increase in the total stock ofmoney been only 1 1/2 per cent,
but even the so-called "purchasing power of the dollar in pre-war cents" has
been rising.... Neither "currency inflation" nor "credit inflation" was
reflected in general prices. 2
The market recovered, as it had done repeatedly, but a month later, on
September 3, a new storm of selling "out of a clear sky" broke on the
Exchange, which in one hour-described as "one ofthe most hectic hours
in the history ofthe Exchange"-"wiped out thousands ofsmall speculators
who up to now had been riding· along comfortably on their paper
profits."
Roger Babson, the noted market analyst and statistician whose words
were accepted as oracular, now came out with a prediction that stocks
were due for a collapse not unlike the collapse of the Florida real estate
boom. In his opinion, from 60 to 80 points would be shorn from the
averages. His reasoning is of interest. He pointed out that while forty
leading stocks of the year before, which stood at an average of 190, had
maintained this position and had shown gains of some 42 per cent, the
number of stocks declining had steadily increased. "There are today
about 1,200 stocks listed on the New York Stock Exchange," the statistician
said. "Ifwe subtract from this list the forty leaders, we find that about
one-halfofthe remaining stocks have declined during the past year. This
means that a greatmany people have lost money as well as made money.
In fact, 614 stocks listed on the New York Stock Exchange are today
selling at less than on January 1."3
Babson's views were promptly challenged by Professor Irving Fisher,
the Yale savant, who announced from New Haven the same day, "Stock
prices are not too high and Wall Street will not experience anything in
the nature of a crash."
As so often when the experts disagree, the public took its own view,
which was recklessly confident, and within a couple of days the market
was again boiling, and prices soaring. On September 6 over five million
shares. traded on a rising market.
The Times found wry humor in the influence exerted by assertions of
sober economists that "would have been described in the unregenerate
past as 'tips on the market.' "