“The Great Crash 1929” – John Kenneth Galbraith – A Book Review
“Under capitalism, man exploits man. Under communism, it’s just the opposite.” – John Kenneth Galbraith
John Kenneth Galbraith was a media darling and rock star economist. Born in rural Ontario, Canada in 1908 (the same year as Ian Fleming – creator of James Bond, and Mel Blanc – creator of Bugs Bunny’s voice). He was educated in the stereotypical one room schoolhouse yet rose to great heights intellectually, as well as physically: the man was almost 7 feet tall! He was a professor at Harvard for many years and served in four US administrations starting with Roosevelt and ending with Johnson and dominated the economic scene remaining firmly in the public’s eye until passing away recently in 2006.
Galbraith was buddies with Kennedy too, who sent him to be ambassador to India where he became buddies with Nehru in the early 60s and was eventually awarded India’s second highest civilian distinction, the Padma Vibhushan. He also picked up a few Presidential Medals of Freedom in the US, along the way.
Before all that gadding about, however, Galbraith coincidentally was an editor of Fortune Magazine from 1943 – 1948, exactly the time that Alfred Winslow Jones, the father of the hedge fund, was working there. Did Galbraith hire Jones and tell him to write about anything except finance? Read more here.
Galbraith was a political economist with a dry wit and a keen observer of humanity as well. This really shows through in “The Great Crash 1929,” a book about the Depression, written in 1954 that has never been out of print. He was a prolific writer and had almost 50 books to his name with “The Affluent Society,” perhaps his best recognized book. Another book of his I have read is, “A Short History of Financial Euphoria,” in which he looks at the various speculative booms and busts mankind has created for itself – all driven by incredible debt piled upon more incredible greed. A great line from that one is:
“The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version.”
He writes about the infamous South Sea Bubble, a time of white hot speculation, when money was being raised for all sorts of crazy ventures. Some of the “promotions” of the day were: “To make Salt Water Fresh,” or “For building of Hospitals for Bastard Children,” or my favorite, “For importing a Number of large Jack Asses from Spain.” !!
When you read “The Great Crash,” (TGC) you are hit by how relevant his observations made over 60 years ago are today. As Galbraith writes,
“Always when markets are in trouble, the phrases are the same: ‘The economic situation is fundamentally sound.’ All who hear those words should know that something is wrong.”
Didn’t I hear Bush use those exact words right before the crash? Isn’t Obama doing the same and the Europeans too, as markets melt down? The “power of incantation” is a running theme throughout his book – as well as throughout recent political speeches.
Back to TGC, Galbraith’s writing skilfully puts us in the life and times of the people who lived during the late 1920’s and its horrible aftermath. And again, like today, readers may not be surprised to see that Goldman Sachs was also front row and center for the spectacular bust bringing “trading corporations” to market where they took 10% and sold 90% to the public, right at the top. (Read the chapter, “In Goldman, Sachs We Trust” and remember this was written in 1954! Things don’t change much).
His examination of just how devastating the crash was – and for how long it continued – is alone, the reason why you should read this book today. Consider:
“The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune.”
Bankers lost their prestige and jobs along with their money and were constant victims and clowns of the press and congressional committees for a decade or more after the crash. Greater legislation in the form of the Securities Act of 1933 and the Securities Exchange Act of 1934 set the rules that we continue to live with today.
After a bust people always ask,”Why did this happen? Why didn’t the authorities do something to stop it?” Again, the echoes of this passage can be heard all the way to Greenspan and the present day:
“Booms, it must be noted, are not stopped until after they have started. And after they have started the action will always look, as it did to the frightened men in the Federal Reserve Board in February 1929, like a decision in favor of immediate as against ultimate death. As we have seen, the immediate death not only has the disadvantage of being immediate but of identifying the executioner.”
Not only does “The Great Crash 1929” give you a feeling of what it was like living through those tumultuous times but it accurately describes much of what we see happening today right now. After re-reading the book and looking at today’s newspaper headlines, yeah, I feel decidedly nervous. Highly recommended.