Land of the Free

And then, as every schoolchild knows, in 1933 the Federal Government stepped into this jungle to bring light where there was darkness, to run the hyenas and banditti out of town (across the Hudson River, perhaps), to make the world safe for the Common Man, who is the Pillar of Capitalism, and who votes by the millions. The Securities Act of 1933 became law. The Securities Exchange Act of 1934 became law. The public was now protected against the sharpies and con men of Wall Street.

Some years ago the great economist George Stigler became interested in the Securities Act of 1933 and the Securities Exchange Act of 1934, wondering in particular whether there was any way to tell if they had done any good. He selected the matter of new issues of stock. He assumed that if Wall Street had been a terrible jungle before 1933 and had been cleaned up by federal sanitation engineers, then the experience of the gullible and uninformed investor in new issues after 1934 would be significantly better than the experience of investors in new issues before 1933. He took two ten-year periods, one in the riproaring 1920s and one in the fairly prosperous 1950s. He studied every new issue brought to market in the two periods. He discovered that there was no measurable difference between the jungle of the Twenties and the regulated barracks of the Fifties. As many new issues went up or down, proportionately, as always. The same percentage of them flopped. Investors gained or lost as much money as before.

WR

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William F. Rickenbacker

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And then, as every schoolchild knows, in 1933 the Federal Government stepped into this jungle to bring light where there was darkness, to run the hyenas and banditti out of town (across the Hudson River, perhaps), to make the world safe for the Common Man, who is the Pillar of Capitalism, and who votes by the millions. The Securities Act of 1933 became law. The Securities Exchange Act of 1934 became law. The public was now protected against the sharpies and con men of Wall Street.

Some years ago the great economist George Stigler became interested in the Securities Act of 1933 and the Securities Exchange Act of 1934, wondering in particular whether there was any way to tell if they had done any good. He selected the matter of new issues of stock. He assumed that if Wall Street had been a terrible jungle before 1933 and had been cleaned up by federal sanitation engineers, then the experience of the gullible and uninformed investor in new issues after 1934 would be significantly better than the experience of investors in new issues before 1933. He took two ten-year periods, one in the riproaring 1920s and one in the fairly prosperous 1950s. He studied every new issue brought to market in the two periods. He discovered that there was no measurable difference between the jungle of the Twenties and the regulated barracks of the Fifties. As many new issues went up or down, proportionately, as always. The same percentage of them flopped. Investors gained or lost as much money as before.