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The Great Crash 1929 Paperback – September 10, 2009
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About the Author
John Kenneth Galbraith (1908-2006) was a critically acclaimed author and one of America's foremost economists. His most famous works include The Affluent Society, The Good Society, and The Great Crash. Galbraith was the recipient of the Order of Canada and the Robert F. Kennedy Book Award for Lifetime Achievement, and he was twice awarded the Presidential Medal of Freedom.
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Top customer reviews
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If you haven't lost anything in the recent crash, you are smart enough and don't need to read this. Or too poor to bother.
If you have lost, as I have, the book is too depressing. Written in 1955 and describing what happened in 1929, one should have thought that we might be endowed with a better collective memory. That we might have learned.
The book has never been out of print, which is another oddity. Every few years we get reminded and then we forget again.
When the book first came out, the McCarthy crowd called Galbraith a crypto communist. Well, the usual crap from the decent people, who don't hesitate to call Obama a communist.
Galbraith, like Krugman, never made a secret about his political allegiance with the 'liberal' side of the divide. (I detest that usage of a good old much abused word.)
He was a brillantly funny writer who mastered the art of irony with bravour. Apart from telling us how the actual crash happened, he gives us a few much needed lectures on important trivia, such as the economics of embezzlement, or the theory of the non-business meeting (I am sure admirers of President Hoover will find these gems of sarcasm overstated and unfair).
His crash story would be very entertaining if it were not so sad.
Obviously nothing much has changed between 1929 and 2008, as far as the inventiveness of the financial world and the stupidity of their victims are concerned.
Essentially the problem of speculation and the boom/crash cycle can be explained with a few basic insights. The criminal energy and creativity of the financial engineers like Ponzi and the present day hero whose name is too dirty to print, is the basis, of course. The world, ie the 'market', is populated by people who want an excuse to believe, and all people are most credulous when they are most happy, ie in a boom. Everybody knows about booms and busts, but no one, wise or unwise, knows when the turning point comes. In shaky times (will we crash or not?) the belief in the value of incantations is unbroken: the essentials are sound, the market is only correcting errors, we have reached the bottom, the future will be stable...
Brecht wrote the lovely question: what is a bank robbery in comparison to the founding of a bank (meaning in terms of comparative criminality)?
I think his question should be updated by referring it to investment banks; maybe the top managers' bonus scheme is the icing on the cake.
P.S. it should be understood that the focus is the crash of 29, not the following decade of depression. JKG raises the logical question why the depression, which might have been expected, lasted so long. He treats this question briefly in the last chapter, and it is certainly worth a much longer, but different book.
He gives a set of structural aspects which may have contributed to the depth and duration of the depression. These are: a) the very unequal income distribution at the time, b) the bad corporate structure of the time, where holding companies and investment trusts were milking the production companies and prevented capital investments in order to pay debts, c)the inefficient banking structure of the time, d)the unbalanced foreign trade situation, e)the low level of understanding of economists of the time (Fighting depression by tax increases and budget savings?).
For sure not the last word on the subject.
(mostly lawyers) foolishly believed had caused the Depression. Their understanding of free market behavior was so poor that they honestly believed that companies would simply keep manufacturing products despite a fall in demand. No one has ever successfully explained exactly why on earth they would believe such a thing.
Today we look with complete amusement at the attempts made by FDR and his fellow
planners to reduce "overproduction," maintain high prices, especially food prices (!!!), "spread the workweek," etc. It's abundently clear that they were
totally clueless as to both the causes of and the necessary policies to deal with the depression. As to stock market crashes, in his excellent work, Rethinking the Great Depression, Gene Smiley points out that in the stock market crash of August 1937 until April 1938, the S&P fell 52 percent. Which happens to be TWICE the amount lost during the so-called Great Crash of 29 (Sept, 1929 to May,1930).
Of course, this occurred after 4 1/2 years of New Deal policies, which Galbraith
had a hand in. Funny how he considers the Great Crash of 29 to be important, but not the much greater crash of 1937. That tells you everything you need to know about Galbraith and his "insights."
Galbraith writes for the general audience, which means he not only leaves out most of the arcane details, but he also writes in an engaging style. Galbraith's view is that the great speculative boom that preceded the Great Crash was fueled by not by easy credit, but rather by a mindset that ignored risk and assumed that the market would go ever upwards - in short, a mania. The leverage that helped raise the market to unknown heights, particularly buying on the margin, also built in the means for the sudden collapse. Once the market nosed over, margin calls went out, some were met, many were not, and the market tumbled faster and farther. Galbraith demonstrates that many leaders held onto a `boundless optimism' long after any rational support for such a view had disappeared.
Galbraith's main focus is on the market speculation and its collapse, but he also takes the view that the stock market collapse did in fact contribute greatly to the cause of the Great Depression. Galbraith asserts that the economy was not in strong shape before the stock market collapse. He likens the Great Crash to `typhoon which blew out of lower Manhattan'. The crash in the market struck the rich especially hard and because wealth was so concentrated the subsequent shrinkage in spending and investment by the rich caused serious damage to the economy. While we have significant safeguards in place today that did not exist in the 1930's, we also once again have a concentration of income and wealth eerily comparable to the pre-depression era.
Highest recommendation. Well-written, well-argued, and timely (once again). Readers may also appreciate Galbraith's equally readable A Short History of Financial Euphoria (Whittle)
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