As mentioned in the last post, Ben Graham contributed to the 1933 Senate hearing Investigation of Economic Problems. His letter was titled “Sounder Money and Better Business.”
I read it the other day to see what he had to say. It’s all economy stuff. So you won’t find wise words on investing, markets, or behavior. But if you have an interest in the Great Depression and a grasp the problems plaguing the U.S. at the time, you might find this interesting too.
Here’s Graham’s take on the problem:
…the plan attacks directly the central paradox of the depression, namely, poverty caused by superabundance, by transforming our surplus of commodities from a cause of national disaster into a source of national strength…
General overproduction has been termed a theoretical impossibility, but it has proved also a practical and disastrous actuality. This has been due to the failure of effective purchasing power to keep pace with increasing production…
Under present conditions, when production in general outstrips consumption, the whole economic mechanism is thrown out of gear. Deflation and depression are the only remedies. The adjustment is always painful, sometimes protracted, and in this instance almost fatal.
Graham laid out exactly what it would not do and his five-point plan to stabilize prices, which he believed would eventually boost purchasing power, help businesses, increase hiring, etc, and put the country back on a path toward prosperity.
Herewith is presented a measure designed as a sound and effective means of raising and stabilizing the general price level. Such a development is generally recognized as the most important single requisite for the restoration of prosperity and employment. This plan avoids the chief defects of others, now before the country, in that:
- It does not involve abandoning the gold standard, devaluing the dollar, coining silver at a high price, or issuing unsecured or bond-secured paper money,
- It requires no governmental expenditures, borrowing, or guaranties.
- It imposes no taxes.
- It involves no changes of any kind in our political or economic system.
The proposed measure, on the other hand, will produce numerous and vital benefits. In ascending order of importance they are as follows:
- It will improve the soundness of our existing currencies.
- It attacks directly the central paradox of the present depression, namely, poverty from superabundance, by transforming our surplus of commodities from a cause of national disaster into a source of national strength.
- It will establish a stable average price level for basic commodities and thus contribute signally to the maintenance of stable and prosperous business.
- It supplies an effective mechanism by which the country’s productive capacity can be utilized for its proper purpose, namely, to raise the standard of living of the American people. There is still a fifth important advantage of special character:
- The plan provides an acceptable method of solving the vexing problem of war debts.
The measure is not intended as a panacea, however. It does not guarantee employment for all, a profit for every business, or a satisfactory price for every product.
I’m not versed enough to guess whether his unique solution would have worked or not. Feel free to judge for yourself – hit the link below to grab the PDF copy and read it.
Ben Graham: Sounder Money and Better Business 1933
- Nudge, Not Sludge – R. Thaler
- Appealing Fictions – M. Housel
- The Skeptics Checklist – Behavioral Value Investor
- The Value Premium: What This Indicator is Telling Us About the Business Cycle – Globe & Mail
- Mean Reversion and the Placebo Effect – Wealth of Common Sense
- Visualizing the Market Capitalizations of the Largest vs. the Smallest Stocks in the S&P 500 – Four Pillar Freedom
- Vanderbilt and the Greatest Corner Never Told – K. Akre
- Famous Speeches and Great Talks Most People Have Never Heard – J. Clear
- Why Competitive Gaming is Starting to Look a Lot Like Professional Sports – The Verge
- How an Ex-Cop Rigged McDonald’s Monopoly Game and Stole Millions – Daily Beast
- Leonardo Da Vinci’s To Do List (Circa 1490) – Open Culture