Thom Foolery's Reviews > The Great Crash of 1929

The Great Crash of 1929 by John Kenneth Galbraith
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Feb 17, 10

bookshelves: history, politics, economics
Recommended to Thom by: Matt Taibi's blog
Read from February 10 to 17, 2010, read count: 1

"Always when markets are in trouble, the phrases are the same: 'The economic situation is fundamentally sound' or simply 'The fundamentals are good.' All who hear these words should know that something is wrong." - p. xiv. In these introductory words written for the 1997 edition, Galbraith plays the first notes of the leitmotif running through all speculative bubbles, particularly the great bubble and crash of 1929 (and subsequent depression), the notion that expansion of economic speculation is fundamentally sound rather than being too good to be true. Again and again we hear these exact words spoken by financiers and politicians alike, and again and again economic realities put the lie to these assurances. As the author notes, "In these matters, as often in our culture, it is far far better to be wrong in a respectable way than to be right for the wrong reasons" (p. 85).

As suggested by that last quote, Galbraith's prose can be quite charming, especially considering the relatively dry and depressing (pun intended) nature of the subject matter. In describing the speculative bubble of the late 1920s: "Never before or since have so many become so wondrously, so effortlessly, and so quickly rich. Perhaps Messrs. Hoover and Mellon, and the Federal Reserve were right in keeping their hands off. Perhaps it was worth being poor for a long time to be so rich for just a little while" (p. 42). Perhaps we'll have a chance to make a similar assessment about the last decade of debt expansion and its lasting consequences.

Apart from rhetoric about "fundamental soundness" and a national culture that emphasized getting rich quick. there are other salient parallels between the Great Crash of 1929 and the dire straits in which we find ourselves circa February 2010. Then, as now, financial innovations "brought about an almost complete divorce of the volume of corporate securities outstanding from the volume of corporate assets in existence" (p. 47). According to Galbraith, the investment trusts "were undertakings the nature of which was never to be revealed, and their stock also sold exceedingly well" (p. 49). "[D:]ishonesty, inattention, inability, and greed were among the common shortcomings of the new [investment trust:] industry," according to Paul Cabot of The Atlantic Monthly, cited on p. 56. (Another profound similarity between the two decades!)

Galbraith's narrative provides a concise description of the Great Crash, and its multiple causes (many of which are attributed to the internal contradictions of capitalism, without a call for throwing the baby out with the bathwater). As the author notes, economic historians are unique among their profession in that they are asked to make predictions that will keep the past from repeating itself. Disavowing the role of prophet, Galbraith nonetheless attempts in his closing chapter to suggest some ways of avoiding speculative explosions and subsequent depressions. Unfortunately, it seems that few people in positions of authority and power have cared to take heed, and that history is doomed to provide a reprise for us, the slow learners.
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Reading Progress

02/12/2010 page 74
33.04% "From what I've read so far, it appears that we really haven't learned a single thing from history."

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