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Washington Lawyer

Legal Spectator: Memories Do Play Tricks

From Washington Lawyer, November 2012

By Jacob A. Stein


In looking through old papers, I found the “Spec” clipping dated June 2005. Those times were happy times when we were sure we could sell our homes for three times the buying price.

President Calvin Coolidge, a very conservative man, had the same feeling. He said this to a joint session of Congress in December 1928: “The requirements of existence have passed beyond the standard of necessity into the region of luxury.” Hooray:

No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment, harmonious relations between management and wage earner, freedom from industrial strife, and the highest record of years of prosperity. In the foreign field there is a peace, the good will which comes from mutual understanding, and the knowledge that the problems which a short time ago appeared so ominous are yielding to the touch of manifest friendship. The great wealth created by our enterprise and industry, and saved by our economy, has had the widest distribution among our own people, and has gone out in a steady stream to serve the charity and the business of the world. The requirements of existence have passed beyond the standard of necessity into the region of luxury. Enlarging production is consumed by an increasing demand at home and an expanding commerce abroad. The country can regard the present with satisfaction and anticipate the future with optimism.

There is an odd, little red book published in 1931 titled Oh Yeah?, which is a compilation of the optimistic predictions of the richest and brightest people on Wall Street after the stock market crashed, people who were sure everything would get better quickly. Here are a few quotes:

Prophecy is a vain thing and I have no wish to join the ranks of the prophets, but I cannot believe that this country of ours, with its huge consumption and its enormous capacity, can long remain in a state of depression. . . . I believe . . . that we have turned the corner.
—P. E. Crowley, New York Central Railroad president, June 1930

If we buckle down to our jobs, prosperity will be back again before we realize it.
—Adolph Zukor, movie tycoon, August 31, 1930

A return of the credit market and business activity will perhaps be slow during the first half of the coming year, but conditions will obtain their regular equanimity before the year is out.
—Julius H. Barnes, Chamber of Commerce of the United States president, December 12, 1929

With the exception of the difficulties that have arisen as a result of the drastic deflation of commodity prices, the business horizon is clear
. . . . We all know that the present period cannot long endure. 
—Richard Whitney, New York Stock Exchange (NYSE) president, September 10, 1930

In October 1929, Richard Whitney was chosen as the authoritative representative of Wall Street to go on the floor, buy stock, and urge others to do so. Whitney, at that time, sat on the New York Stock Exchange board of governors.

Whitney’s efforts failed. Despite this, he himself lived in grand style. He had the means, so it seemed, to be the grandee treasurer of the New York Yacht Club. He remained on the NYSE board until 1938 when Thomas E. Dewey, the then Manhattan District Attorney, charged him with embezzlement. Whitney pled guilty. He served three years in Sing Sing.

Now back to President Coolidge. It was thought he would run again for the presidency in 1928. He was the unbeatable candidate. Everyone was in the money.

However, his son died. Coolidge became depressed. He no longer wished to remain in politics.

The Republicans selected Herbert Hoover as their man. Hoover, born in a small town in Iowa, was raised by relatives when his parents died. He graduated from Stanford University with a degree in geology, worked as a mining engineer, and, in a short time, became a millionaire. He then turned to public service, leading food relief efforts in Europe during and after World War I.

In the 1920s Hoover became Secretary of Commerce, and in that role he created the Federal Radio Commission (now Federal Communications Commission) and the Aeronautics Branch (the precursor of the Federal Aviation Administration).

In the 1928 Coolidge good times, the Republicans nominated Hoover to run against Al Smith for the presidency. Smith had served four terms as governor of New York. Franklin D. Roosevelt, who had reentered politics after his polio illness, decided to run for governor of New York. Hoover and FDR won.

Then came the 1929 stock market crash.
In 1932 FDR opposed Hoover who was running for a second term. But things had changed. FDR and the New Deal won big. The Depression continued. Then World War II broke out, which gave work to everyone. The Depression disappeared. There was plenty of money and no inflation. How this trick worked remains a puzzle.

Reach Jacob A. Stein at [email protected].