9 Lessons From The Great Depression

Dean Mathey was a successful investor who served as chairman of the investment committee at Princeton from the 1920s through the 1940s. Late in his career he privately published a book called Fifty Years of Wall Street that included a section with nine lessons learned during the Great Depression,

It was reprinted in the book The Investor’s Anthology by Charles Ellis. I think his commentary has aged well and is worth a read:

1. That once about every 7 to 10 years there is a period of excessive general speculation culminating in a severe panic or depression when the man that is borrowing money is at a great disadvantage and he who has cash ready stands like a tower, four square to the ill winds that blow.

2. Extreme situations do not last, no matter what the apparent justification. No ladder is high enough to reach to Heaven. While we may have “new eras,” old laws will still operate.

3. Avoid commitments, particularly of the delayed variety, they are more insidious. These birds may be depended upon to come home to roost when they are least welcome. Also, be definite about commitments made by to you by others. When the storm comes, misunderstandings are so easy and so natural. What a joy a good clear record is in such a predicament!

4. Both in 1920 and 1929 the so-called “big fellows” in general said everything was o.k. But if the big fellows in general thought otherwise the stage could not be set for the unexpected. Panics occur because the leaders themselves have lost their way. And panics on Wall Street are notoriously periodic.

5. Never borrow money without continuously reviewing and questioning your ability to pay it back under the worst conditions. Never borrow short-term money on unmarkable collateral.

6. It’s right to be an optimist, but be prepared for the worst.


8. People borrow money in good times and pay it back in bad times — just the opposite of what they should do.

9. The public are just as blind to recognizing the bottom of a depression as they are in recognizing the top of a boom. While there is no ladder that reaches Heaven, the ladder that reaches all the way down to Hell in a country like America is just as fantastic.

His talk of investment cycles still holds up well, but I find it fascinating how much he talks about the pitfalls of leverage. You really get the sense that investors were scarred for life from overdoing it with borrowed money after what they experienced during the Great Depression. I also subscribe to the be an optimist but prepare for the worst line of thinking.

The Investor’s Anthology: Original Ideas From the Industry’s Greatest Minds


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  1. Liza commented on Apr 12

    Hi Ben,

    All very sound and basic advice. But here is a question. Does traditional business cycle theory pertain in the same way now as it did, beginning, say, during the industrial revolution?

    Are we not seeing a collapse or contraction into a more ‘steady state’ third world economic experience? If this is the case, could we not have a descent into Hell for those unable to climb onto what is already the failing lowest tier of a debt pyramid scheme (essentially)? And this, while a proportionately few individuals, who have reached home free, at the top of the pyramid, stay there, safely ensconced?

    Speaking of ladders–the slide down has taken place while the rungs have been removed, disabling a climb back up, for most.

    • Ben commented on Apr 13

      Good point. I like to say it’s always different this time with regards to market dynamics but it’s never different this time with regards to human nature. See this one I wrote a while ago:


      I think technology has been both a blessing and a curse for the inequality you’re talking about. It offers more opportunities, but there are also those that can get completely left behind. But I tend to think the third world will be the biggest beneficiaries of the improvement in tech. One more for your reading pleasure:


      *With the caveat that who knows how this all plays out.

      • Liza commented on Apr 14

        Automation has the potential to free us all from the drudgery of the past, the mind-numbing factory And, of course, in the developing world, freed up factory workers can move into more sophisticated types of work. This is the promise held out to burgeoning technocracies. But what about people who aren’t super intelligent? There are a lot of them out there. It’s as if we, as a society, are allowed to talk all around this sensitive issue without addressing it directly. The past was okay for those with average intellect but the present is really lousy and the future, (unless we look at innate ability unflinchingly) is going to be quite literally, punitive.

        Automation makes entry into the cozy club of mankind much more exclusive.

        • Ben commented on Apr 14

          Take a look at Tyelr Cowen’s Average is Over book. He addresses many of your concerns and says that the people who are able to offer a useful service to the more wealthy people who have figured it out will be able to prosper. The book is worth a read if you’re interested in this stuff.

          • Liza commented on Apr 17

            Thanks Ben,

            Average is Over. Hadn’t heard of it. I will give it a look!

  2. Financial-Fitness commented on Apr 14

    Their aversion to debt reminds me of a great line I read in Carl Richard’s latest book: “People who understand interest earn it. People who don’t pay it.” So true.

    • Ben commented on Apr 14

      Yup, good one.

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