In the aftermath of the destruction of World War I, central banks had been established across the globe, and the u.s. had become an economic and military world power. America during the Progressive Era gave women the right to vote, established a federal income tax, and prohibited alcohol consumption across the nation. However, with the world at peace and a series of tax cuts in place, the u.s. had a prosperous if not stable economy during the 1920s. The 1920s saw technological revolution as important as the world has ever experienced. This was the decade when the airplane and automobile went into mass production. In communication, it was the onset of mass availability of the telephone and radio. Motion pictures were invented, along with electric household appliances such as the electric toaster and refrigerator. The use of petroleum products and electricity increased dramatically while the use of manual power decreased. Assembly-line production became ubiquitous and was seen as the key to industrial progress.
This decade of economic boom and stock market bubble is often referred to as the Roaring Twenties. Rothbard (1983) has persuasively shown that the principal cause of the boom and bubble was the Federal Reserve management of the nation's money and banking systems. The nation, and indeed the world, had been fundamentally changed during the Progressive Era and the world economy no longer functioned automatically according to market discipline. Central banks could now engineer unnatural swings in money supplies, interest rates, and foreign exchange rates. Therefore the best explanation of the Great Depression is that Federal Reserve policy led first to overly optimistic capital investments and then to the inevitable correction via the bust in the stock market and unemployment in the economy.The length of the Great Depression is attributed not to the initial cause, but to subsequent government policies that were used to counter the symptoms of depression-policies that instead stymied the readjustment process.
Progressives such as Irving Fisher were the vanguard of this "new era" of the 1920s, proclaiming it to be nothing less than the early stages of a real-world utopia. Fisher was an enthusiastic supporter of Herbert Hoover and believed that the great economic prosperity of the 1920s was attributable to alcohol prohibition and, more importantly, the "scientific" stabilization of the dollar that had been undertaken by the Federal Reserve. In his view, this new technocracy would employ price indexes to measure the value of the dollar, and Federal Reserve policies would maintain a stable dollar. Using this approach Fisher believed that business cycles would be a thing of the past and so was completely blindsided by the Great Depression.
Not only did Fisher fail to predict the crash and depression, his predictions were consistently wrong and completely at odds with the course of actual events. Just two days after reaching the peak of the bull market of the 1920s Fisher reassured investors that he foresaw no problem in the stock market: There may be a recession in stock prices, but not anything in the nature of a crash. Dividend returns on stocks are moving higher. This is not due to receding prices for stocks, and will not be hastened by any anticipated crash, the possibility of which I fail to see. (Fisher 1929a) In addition to alcohol prohibition and a "stable" monetary policy, Fisher placed a great deal of emphasis on the role of investment trusts. According to Fisher the market for stocks would remain buoyant because the small investor could now hold a diverse number of stocks that were professionally managed by purchasing shares of the investment trust companies (which were similar to today's mutual funds). He thought that it was the trusts that brought more money into the stock market and that the trusts would allow investors to remain invested during bear markets.
A few years ago people were as much afraid of common stocks as they were of a red-hot poker. In the popular mind there was a tremendous risk in common stocks. Why? Mainly because the average investor could afford to invest in only one common stock. Today he obtains wide and well managed diversification of stock holding by purchasing shares in good investment trusts. (Fisher 1929a) Even after stocks started to fall in value, Fisher (1929b) stated on October 15th that stocks had reached a "permanently high plateau," and that he expected "to see the stock market a good deal higher than it is today within a few months" and that in any case he did "not feel that there will soon, if ever, be a 50 or 60 point break below present levels." On October 22 Fisher (1929c) was quoted as saying that he believed "the breaks of the last few days have driven stocks down to hard rock. I believe that we will have a ragged market for a few weeks and then the beginning of a mild bull movement that will gain momentum next year." On October 24 Fisher (1929d) was quoted as saying that if "it is true that 15 billion in stock quotation losses have been suffered in the present break I have no hesitation in saying values are too low." And yet once again, the next day the New York Times reported the "Worst Stock Crash" with nearly 13 million shares swamping the market.
Less than a week later, on October 28th and 29th, the Dow Jones Industrial Average (DJIA) plummeted, with almost a 70 point "break" and a 2 day loss of almost 250/0. The stock market lost one-third of its value during October 1929, and on November 3rd Fisher (192ge) was quoted as saying that stock prices were "absurdly low." However, stocks had much further to fall, and in the 2 years following his predictions the DJIA lost almost 90% of its peak value and the market value of the leading investment trusts lost 950/0 of their market value. Not until the modern-day pundits of the technology stock bubble of the late 1990s was such a dismal record of predicting stock markets replicated. The stock market crash signaled the beginning of the Great Depression, the longest and most severe economic decline in modem history.
Well after the fact, Irving Fisher (1932, p. 75) identified what a "New Era" really was. In trying to identify the cause of the stock market crash and depression he found most explanations lacking. What he did find was that such new eras occurred when significant technological improvement resulted in higher productivity, lower costs, more profits, and higher stock prices: "In such a period, the commodity market and the stock market are apt to diverge; commodity prices falling by reason of the lowered cost, and stock prices rising by reason of the increased profits. In a word, this was an exceptional period-really a 'New Era'." The key development of the 1920s was that monetary inflation did not show up in price inflation as measured by price indexes, or as Fisher (1932, p. 74) noted: "One warning, however, failed to put in an appearance-the commodity price level did not rise." He suggested that price inflation would have normally kept economic excesses in check, but that price indexes have "theoretical imperfections."
During and after the World War, it (wholesale commodity price level) responded very exactly to both inflation and deflation. If it did not do so during the inflationary period from 1923-29, this was partly because trade had grown with the inflation, and partly because technological improvements had reduced the cost, so that many producers were able to get higher profits without charging higher prices. (Fisher 1932, p. 75) Fisher had stumbled near a correct understanding of the problem of new-era thinking. Technology can drive down costs, increase profits, and create periods of economic euphoria. What he would not understand is that artificial monetary inflation is what prevents true economic signals (i.e., market prices and interest rates) and the rational economic calculation that they provide. Fisher's so-called scientific approach of using price indexes to manage the economy and the money supply was what actually caused the biggest economic policy mistake in history. Naturally this insight could not penetrate Fisher's ego because he had recommended those monetary injections to prevent any decrease in the price level, and he never lost faith in scientific management of the economy or his devotion to the idea of a stable dollar. Fisher's detailed analysis and painstaking investigations of the crash also did little to improve his economic forecasting.
As this book goes to press [September 1932] recovery seems to be in sight. In the course of about two months, stocks have nearly doubled in price and commodities have risen 5 1/2. European stock prices were the first to rise, and European buyers were among the first to make themselves felt in the American market. (Fisher 1932, p. 157) Fisher (1932, p. 158) attributed this "success" to inflationary measures undertaken by the Fed that were of deliberate "human effort more than a mere pendulum reaction." Unfortunately, not only was his prediction wrong-the world was only at the end of the beginning of the Great Depression-the "human effort" that he thought was the tonic of recovery was actually the toxin of lingering depression. Fisher scoffed at the "mere pendulum reaction" ofthe market economy that actually can correct for the excesses in the economy by liquidating capital and credit - a concept that he clearly opposed. However, the facts suggest otherwise. In previous depressions the market economy liquidated the malinvestments of the boom, leading the economy quickly back to prosperity. During the Great Depression, the Fed cut the discount rate from 6% to 1.5% and Federal Reserve credit outstanding almost doubled between 1929 and 1932, but their efforts were the equivalent of blowing air into a broken balloon: money pumping at the Fed could only prolong and worsen the problem that they created during the 1920s. 14 Looking backward into history, Milton Friedman (a disciple of Fisher's economic views) actually condemned the Fed for not doing enough (i.e., monetary inflation) in the early phase of the Great Depression. Likewise Friedman (1997) joined Paul Krugman in condemning the Bank of Japan for not increasing the money supply enough in their attempt to drive Japan out of its economic malaise during the 1990s despite the Bank's zero interest rate policy.
Nenhum comentário:
Postar um comentário