¹ Similar results are obtained running the regressions on the 1919–1927 subsample (107 observations) and a 1921–1927 subsample (84 observations). In other words, the results are not an artifact of developments during the last two years of the 1920s.Google Scholar

² Field, A. J., “Asset Exchanges and the Transactions Demand for Money,” American Economic Review, 74 (03 1984), 43–59.Google Scholar

³ Kindleberger, Charles P., The World in Depression, 1929–1939 (Berkeley, 1973).Google Scholar

⁴ Federal Reserve System, Board of Governors, Banking and Monetary Statistics, 1919–1941 (Washington, D.C., 1976), Table 133, pp. 480–81.Google Scholar

⁵ Ibid., Table 135, p. 485.

⁶ For a critical review of these debates, see Machlup, Fritz, The Stock Market, Credit and Capital Formation, trans. Smith, Vera C. (New York, 1940, translation of Borsenkredit. Industriekredit und Kapitalbildung, 1931), especially Chs. 2–4.Google Scholar

⁷ Burton Malkiel prefers a narrower definition of speculation, distinguishing it from investment, which he defines as the buying and holding of assets in anticipation of “reasonably predictable income … and/or appreciation over the long term” (his italics).Google Scholar Speculation is defined in contrast as the holding of assets over the short term in anticipation of unpredictable gains. The emphasis on the short–term orientation of speculation does suggest that speculation might be associated with higher trading volume, but Malkiel does not develop this point. Malkiel has a strong normative preference for a buy and hold strategy (also reflected in our income tax treatment of short– and long–run capital gains), believing it beneficial for the individual (and presumably the economy, aside from the brokerage industry). See A Random Walk Down Wall Street, Second College Ed. (New York, 1981), p. 20.

⁸ In fact, the opposite was maintained. A “Preliminary Memorandum for the Open Market Investment Committee” distributed before the meeting of May 24, 1928 asserted that “the movement of stock prices … rather than the volume of trading has caused the expansion of security loans.” George Leslie Harrison papers, Columbia University Library, file labeled “Open Market Investment Committee, 1928.” I argue that this analysis is basically incorrect. The increased demand for bank credit, regardless of how collateralized, was a reflection of an increased demand to hold cash balances for transactions purposes. The expansion of the asset side of bank portfolios reflected the increased desire to hold bank liabilities in an environment in which, over the short run, interest rates, not money stock figures, were being targeted.Google Scholar

⁹ Total U.S. government security holdings of Federal Reserve Banks fell from $617 million at the end of 1927 to $228 at the end of 1928. Total bills discounted, however, jumped from $581 million at the end of 1927 to $1056 million at the end of 1928. (Board of Governors, Banking and Monetary Statistics, p. 331.) Rough stability in the monetary base and M1 disguises a contractionary policy that manifested itself in rising market interest (and eventually discount) rates. M1 remained virtually unchanged from September 1925 to September 1929.Google Scholar

¹⁰ This section is based on a reading of the folders labelled “Open Market Investment Committee” for 1927–1929 in the Harrison papers, and the entries organized under “Discount Rate” in the typewritten summary of the Hamlin diary. Charles Sumner Hamlin diary, Library of Congress manuscript division.Google Scholar

¹¹ Friedman, Milton and Schwartz, Anna J., A Monetary History of the United States, 1867–1960 (Princeton, 1963), p. 291;Google ScholarTemin, Peter, Did Monetary Forces Cause the Great Depression? (New York, 1976).Google Scholar

¹² On April 18, 1929 “Mellon said he wished rates had been increased long ago, but he felt sure that even if they had been increased conditions could not have been essentially different from what they are now, that increased discount rates would not have decreased speculation.” On April 25, according to Hamlin, Mellon reiterated the proposition that “you cannot break [the] stock market by increasing discount rates,” and on May 16, 1929, ‘Secretary Mellon said 6 percent rate would not cure the situation in New York stock market, nor would even 9 percent–that the stock market was beyond control through discount rates; that what he wanted to do was to restore the proper relation between Federal Reserve rates and market rates.” These quotes are from the typewritten guide to the Hamlin diary, all entries under “Discount Rates.”Google Scholar

¹³ Board of Governors, Banking and Monetary Statistics, Table 120, p. 450.Google Scholar

¹⁴ Ibid.

¹⁵ Temin, Monetary Forces, pp. 1, 123, 137, 170.Google Scholar

¹⁶ Dorfman, Nancy, “The Role of Money in the Investment Boom of the Twenties and the 1929 Turning Point,” unpublished Ph.D. dissertation, University of California, Berkeley, 1967, p. 61.Google Scholar

¹⁷ U.S. Department of Commerce, Survey of Current Business, 10 (02. 1930), 2, 3, 7, 15.Google Scholar

¹⁸ Board of Governors, Banking and Monetary Statistics, Table 128, pp. 468–69.Google Scholar

¹⁹ Survey of Current Business, 10 (02. 1930), 12, 17, 49.Google Scholar

²⁰ Swanson, J. A. and Williamson, S. H., “Estimates of National Product and Income for the United States Economy, 1919–1941,” Explorations in Economic History, 10 (Spring 1973), 235–51.Google Scholar

²¹ Mishkin, Frederic S., “The Household Balance Sheet and the Great Depression,” this JOURNAL, 38 (12. 1978), 918–37.Google Scholar

²² Keynes, J. M., A Treatise on Money, 2vols. (New York, 1930), Vol. 2, p. 196. In this quote Keynes refers to the slump of 1930, but it is clear he means the slump that began in 1929, since two pages earlier he attributes the “slump of 1929–1930 … to a deficiency of investment” (p. 194).Google Scholar