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431 Days: Joseph P. Kennedy and the Creation of the SEC

Last Days of the Financial Frontier

Speculation Regulation and Laissez-Faire in US History

Americans have always been ambivalent about unearned wealth: the Protestant work ethic inevitably tempered by vague hopes of getting rich quick. This ambivalence even shaped the nation's politics. From the Early Republic's fights over the Bank of the United States to the Credit Mobilier Scandal of the 1860s, Americans repeatedly--but sporadically--turned to politics to rein in the wealthy who used, in Supreme Court justice Louis Brandeis's words, "other people's money" for their own enrichment.

This effort reached a peak in the "Progressive Era" of the early twentieth century. Publicity furthered reform as muckraking journalists and more respectable types like Brandeis exposed the advantages taken by wealthy speculators. In 1912 Congress investigated the malfeasance of corporate America, even calling the imperious J.P. Morgan as a witness, in its Pujo Committee hearings.

State legislatures, meanwhile, were passing the first stock exchange regulation measures. These were called "blue sky laws" because stock swindlers were believed to be not above selling "building lots in the blue sky." Reflecting the advice of Brandeis, who wrote that "sunlight is the best disinfectant," these laws sought to expose the machinations of speculators. The first blue sky law, passed by Kansas in 1911, ordered that securities be registered and that dealers be licensed. Within two years twenty-three states followed this lead, but dishonest dealers discovered that they could escape prosecution simply by using the mails to make offerings across state lines.

Despite its domination by a few insiders with uncommon access to information, even the New York Stock Exchange adopted registration provisions, but un unscrupulous dealers got around them by selling "unlisted" securities "over-the-counter" or on the "curb exchange." Despite these efforts at reform, for most Americans, entering financial markets remained akin to gambling--but through the 1920s Americans were, characteristically, of two minds as to whether that was a good or bad thing.

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Related Museum Resources

Papers

December 19, 1912

Testimony of J.P. Morgan on the Money Trust Investigation to the Subcommittee of the Committee on Banking and Currency, U.S. House of Representatives (Pujo Committee)

[transcript] (pdf) (excerpt - Government Records)

December 20, 1913

"What Publicity Can Do," Harper's Weekly - Louis D. Brandeis

[document] (pdf) (Courtesy of the Library of Congress)

Photos

1912

J.P. Morgan

(Courtesy of the Library of Congress )

1912

Louis Brandeis

(Courtesy of the George Grantham Bain Collection, Library of Congress )

1916

Curb Traders in New York City

(Courtesy of the Library of Congress )