During October 1907, when the stock market crashed and the banking system panicked, we had no central monetary authority. We just had J.P. Morgan.

• “Why don’t you tell them what to do, Mr. Morgan? (Belle da Costa Greene, J.P. Morgan’s personal librarian)
• “I don’t know what to do myself, but sometime, someone will come in with a plan that I know will work; and then I will tell them what to do. (J. Pierpont Morgan)

Here is a description of events that preceded the 1907 panic:

“A … moralist was in the White House. War was fresh in mind. Immigration was fueling dramatic changes in society. New technologies were changing people’s everyday lives. Business consolidators and their Wall Street advisors were creating large, new combinations…The public’s attitude toward business leaders, fueled by a muckraking press, was largely negative. The government itself was becoming increasingly interventionist in society…Much of this was stimulated by…economic expansion.”

Sounds familiar.

(Quotes are from The Panic of 1907, pp. 2-3; 97)

The Economic Lesson

On October 1, 2008, the Dow Industrial Average closed at 10,831. Only 10 days later, it was at 7773.71.

1907, 1929, 1937, 1987 also had October plunges. With 16 stock market crashes during the 20th century, October has had a disproportionate share.

An Economic Question: During 1907 and 2008, the GDP declined. How might stock market crashes and banking panics relate to a contraction in the economy?