The Intersection of Government Meddling and Business Innovation


On this day in economic and financial history...

The Dow Jones Industrial Average (INDEX: ^DJI) suffered one of the worst drops in its history on Oct. 18, 1937, losing nearly 8% of its value in a widespread panicky response to several negative reports from both the corporate and legal arenas. The American economy had stalled out in its effort to claw back from the depths of the Great Depression as federal spending cutbacks and tax increases (or monetary supply shocks, depending on which school of economics you prefer) reversed several years of growth that had brought national GDP nearly within striking distance of its 1929 highs.

Steel production declines led a parade of bad news that resulted in a then-record 1,014 different stocks changing hands on the exchange floors. Chicago's steel production capacity had declined by a third from the previous month, and important Dow component U.S. Steel (NYS: X) plunged 10% in response to the news.

"There is only one reason [for the crash]," Republican congressional candidate Bruce Barton told The New York Times on Oct 18, 1937. "Politics and the threat of more politics. You can't fool the stock market. Even a President of the United States can't fool it. In 1929, every time Mr. Hoover told us that 'prosperity' was 'just around the corner' the market took a nose dive. ... put more business men in Congress and we will have better business."

Many Wall Street insiders supported that assertion. The Chicago Tribune quoted Chicago Stock Exchange president Thaddeus Benson as saying "insiders have been scared by the government's rules," while a New York Times editorial claimed that, "it must be admitted that business has been handicapped by more political uncertainty and a larger measure of experimental legislation."

The Dow bottomed out approximately five months later, having shed half its value from the start of the mid-Depression bear market to its end.

Let us organize
The first American labor union formed on Oct. 18, 1648 in Boston. A group of shoemakers were granted a charter from the Massachusetts Colony on that day, for the primary purpose of maintaining high quality standards. This was accomplished mainly by offering the "unionized" shoemakers the ability to suppress the business of those competitors deemed inferior. However, colonial authorities withheld the monopolistic ability of (pardon the Old English) "inhancinge the prices of shooes, bootes, or wages."

This arrangement bears more resemblance to modern professional credentialing organizations than it does to today's unions, but it predates all of them by a significant number of years. The first bar exam for lawyers (another long-standing professional group) was not given in the United States until 1763, and national labor unions did not come to prominence until after the Civil War.

Tune in on silicon
Texas Instruments (NYS: TXN) unveiled the world's first commercially successful transistor radio on Oct. 18, 1954. The Regency TR-1 weighed 11 ounces and cost $50, the equivalent of $430 today. It sold over 100,000 units in its first year on the market, paving the way for the widespread mass production of transistors and the public adoption of "portable" electronic technology. The TR-1 had only four transistors, but a modern smartphone processor has over 30 billion, in a smaller and far more functional package. Progress!

The great white north comes to America
America gained control of its recently acquired Alaskan territory on Oct. 18, 1867. Celebrated today as Alaska Day, the transfer of territory from Russia to the United States finalized the $7.2 million purchase of over half a million miles of new land. It was the largest increase in American territory since the Louisiana Purchase, but one of the cheapest -- it only cost the United States about $0.02 per acre. The acquisition barely moved the needle on America's public debt, which stood at $2.5 billion at the time of the transfer.

Today, oil-rich Alaska has returned many times its investment to the American economy. Direct payroll expenditures for workers in the Alaskan oil industry totaled $764 million in 2010, according to an Alaskan Oil and Gas Association report, with BP (NYS: BP) as the largest statewide oil and gas employer. The industry's total impact was estimated at $2.65 billion in annual direct and indirect payroll expenditures resulting from oil and gas exploration.

Although Alaska only extracts 11% of all American oil today (down from 25% in 1988), it still produces 572,000 barrels of oil per day. Adjusted for inflation, it takes a little over two days to extract enough Alaskan oil to pay for the original Alaska purchase.

One IPO you shouldn't have missed
UnitedHealth (NYS: UNH) , the Dow's most recent addition, enjoyed its first day as a publicly traded company on Oct. 18, 1984, when it completed an initial offering of 1.275 million shares on over-the-counter exchanges, at an price of $4.50 per share. Each one of those IPO shares has since returned 398 times their initial investment, before accounting for any reinvested dividends.

The health insurer joined the New York Stock Exchange in 1991, nearly seven years to the day from its IPO. It's been one of the best-performing stocks of all current Dow components since that upgrade.

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