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Welcome to Lachlan Cranswick's Personal Homepage in Melbourne, Australia

Extracts from "The Great Crash: 1929" by John Kenneth Galbraith (First Published 1955; 1961 Reprint)

Lachlan's Homepage is at http://lachlan.bluehaze.com.au

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Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955

From the Introduction

The people who remained sane and quiet

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 27

"Even in such a time of madness as the late twenties, a great many man in Wall Street remained quite sane. But they also remained very quiet. The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil. Perhaps this is inherent. In a community where the primary concern is making money, one of the necessary rules is to live and let live. To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent. The foolish thus have the field to themselves. None rebukes them."

From Chapter 1: "A Year to Remember"

Opportunities for the social historian

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 26

"In the autumn of 1929 the mightiest of Americans were, for a brief time, revealed as human beings. Like most humans, most of the time, they did some very foolish things. On the while, the greater the earlier reputation for omniscience, the more serene the previous idiocy, the greater the foolishness now exposed. Things that in other times were concealed in a heavy facade of dignity now stood exposed, for the panic suddenly, almost obscenely, snatched this facade away. We are seldom vouchsafed a glance behind this barrier; in our society the counterpart of hte Kremlin walls is the thickly stuffed shirt. The social historian must always be alert to his opportunities, and there have been few like 1929."

From Chapter 1: "A Year to Remember"

Conspiracy theories

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 27

"This notion that great misadventures are the work of greate and devious adventurers, and that the latter can and must be found if we are to be save, is a popular one of our time. Since the search for the architect of the Wall Street debacle, we have had a hue and cry for the man who let the Russians into Western Europe, the man who lost China, and the man who thwarted MacArthur in Korea. While this may be a harmless avocation, it does not suggest an especially good view of historical processes. No one was reponsible for the great Wall Street crash. No one engineered the speculation that preceded it. Both were the product of the free choice and decisions of thousands of individuals. The latter were not lead to the slaughter. There were impelled to it by the seminal lunacy which has always seized people who are seized in turn with the notion that they can become very rich. There were many Wall Streeters who helped foster this insanity, and some of them will appear among the heroes of these pages. There was none who caused it."

From Chapter 1: "A Year to Remember"

Unwise to be sane in an insane time

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 28

"Governments were either bemused as were the speculators or they deemed it unwise to be sane at a time when sanity exposed one to ridicule, condemnation for spoiling the game, or the threat of severe political retribution."

From Chapter 2: "Vision and Boundless Hope and Optimism"

Margins: "Wall Street, in these matters, is like a lovely and accomplished woman who must wear black cotton stockings, heavy woollen underwear, and parade her knowledge as a cook because, unhappily, her supreme accomplishment is as a harlot."

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 47

"The machinery by which Wall Street separates the opportunity to speculate from the unwanted returns and burdens of ownership is ingenious, precise and almost beautiful. Banks supply funds to brokers, brokers to customers, and the collateral goes back to banks in a smooth and all but automatic flow. Margins - the cash which the speculator must supply in addition to the securities to protect the loan and which he must augment if the value of hte collateral securities should fall ans so lower the protection they provide - are effortlessly calculated and watched. The interest rate moves quickly and easily to keep the supply of funds adjusted to the demand. Wall Street, however, has never been able to express its pride in these arrangements. They are admirable and even wonderful only in relation to the purpose they serve. The purpose it so accomodate the speculator and facilitate speculation. But the purposes cannot be admitted. If Wall Street confessed this purpose, many thousands of moral men and women would have no choice but to condemn it for nurturing an evil thing and call for reform. Margin trading must be defended not on the grounds that it effeciently and ingeniously assists the speculator, but that is encourages the extra trading which changes a thin and anaemic market into a thick and healthy one. Wall Street, in these matters, is like a lovely and accomplished woman who must wear black cotton stockings, heavy woollen underwear, and parade her knowledge as a cook because, unhappily, her supreme accomplishment is as a harlot."

From Chapter 4: "In Goldman, Sachs we Trust"

Investment Trusts

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 74

"For a long the the New York Stock Exchange looked with suspicion on the investment trusts; only in 1929 was listing permitted. Even then the Committee on the Stock List required an investment trust to post with the Exchange the book and market value of the securities held at the time of listing and once a year thereafter to provide an inventory of its holdings. This provision confied the listing of most of the investment trusts to Curb, Boston, Chicago, or other road company exchanges. Apart from its convenience, this refusal to disclose was throught to be a sensible precaution. Confidence in the investment judgement of the managers of the trusts was very high. To reveal the stocks they were selecting might, it was said, set off a dangerious boom in the securities they favoured. Historians have told with wonder of one of the promotions at the time of the South Sea Bubble. It was 'For an Undertaking which shall in due time be revealed'. The stock is said to have sold exceedingly well. As promotions the investment trusts were, on the record, more wonderful. They were undertakings the nature of which was never to be revealed, and their stock also sold exceedingly well."

From Chapter 4: "In Goldman, Sachs we Trust"

Madness on a heroic scale

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 89

"More investment trusts securities were offered in September of 1929 even than in August - the total was above $600 million. However, the nearly simultaneous promotion of Shenandoah and Blue Ridge was to stand as the pinnacle of new era finance. It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity. If there must be madness something may be said for having it on a heroic scale."

From Chapter 5: "The Twilight of Illusion"

Trying to predict the Crash

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 98 to 99

"Indeed the temporary breaks in the market which preceded the crash were a serious trial for those who had declined fantasy. Early in 1928, in June, in December, and in Februrary and March of 1929 it seemed that the end had come. On various of these occasions the [New York] Times happily reported the return to reality. And then the market took flight again. Only a durable sense of doom could survive such discouragement. The time was coming when the optimists would reap a rich harvest of discredit. But is has long since been forgotten that for many months those who resisted reassurance were similarly, if less permantently discredited. To that the Times, when the real crash came, reported the event with jubilation would be an exaggeration. Nevertheless, it coverted it with an unmistakable absence of sorrow."

New York Times: Thursday, October 24, 1929, Page 1, Col. 1: http://sac.uky.edu/~msunde00/hon202/p4/thursday.html

From Chapter 7: "Things Become More Serious"

Things keep getting worse

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 130

"In the autumn of 1929 the New York Stock Exchange, under roughly its present constitution, was 112 years old. During this lifetime it had seen some difficult days. On 18 September 1873, the firm of Jay Cooke and Company failed, and, as a more or less direct result, so did fifty-seven other Stock Exchange firms in the next few weeks. On 23 October 1907, call money rates reached one hundred and twenty-five per cent in the panic of that year. On 16 September 1922 - the autumn months are the off-season in Wall Street - a bomb exploded in front of Morgan's next door, killing thirty people and injuring a hundred more.

A common feature of all these earlier troubles was that, having happened, they were over. The worst was reasonably recognizable as such. 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 ensure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. (Not only were a recoreded 12,894,650 shares sold on 24 October; precisely the same number were bought.) The bargains then suffered a ruiness fall. Even the man who waited out all of October and all of November, who saw the volumne of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months. The Coolidge bull market was a remarkable phenonmemon. The ruthlessness of its liquidation was, in its own way, equally remarkable."

From Chapter 8: "Aftermath I"

The myth of suicides during the Great 1929 Crash

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 148 to 149.

"In the week or so following Black Thursday, the London penny press told delightedly of the scenes in downtown New York. Speculators were hurling themselves from windows; pedestrians picked their way delicately between the bodies of fallen financiers. The American correspondent for the Economist wrote an indignant column for his paper protesting against this picture of imaginary carnage.

In the United States the suicide wave that followed the stock market crash is also part of the legend of 1929. In fact, there was none.

[TEXT AND TABLE OF STATISTICS DELETED]

One can only guess how the suicide myth beame established. like alcoholics and gamblers, broken speculators are supposed to have a propensity for self destruction. At a time when broken speculators were plentiful, the newspapers and the public may have simply supplied the corollary.

[TEXT DELETED]

Curiously, though another myth runs strongly to the contrary, few people in these days followed the classic method of jumping from a high window.

[TEXT DELETED]"

From Chapter 8: "Aftermath I"

The bezzle of embezzlement

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 152 to 153.

"In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. there is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in - or more precisely not in - the country's business and banks. This inventory - it should be called the bezzle. It also varies in size with the business cycle."

From Chapter 8: "Aftermath I"

The no-business meetings

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 158 to 160

"Yet to suppose that President Hoover was engaged only in organizing further reassurance is to do him a serious injustice. He was also conducting one of the oldest, most important - and, unhappily, one of the least understood - rites in American life. This is the rite of the meeting which is called not to do business but to do no business. It is a rite which is still much practised in our time. It is worth examining for a moment.

[TEXT DELETED]

In recent times the no-business meeting at the White House - attended by governors, industrialists, representatives of business, labour, and agriculture - has become an estrablished institution of government. Some device for simulating action when action is impossible, is indispensible in a sound and functioning democracy. Mr Hoover in 1929 was a pioneer in this field of public administration."

From Chapter 8: "Aftermath I"

Policy of Reassurance

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 162

"What was perhaps the last word on the policy of reassurance was said by Simeon D. Fess, the Chairman of the Republican National Committee:

Persons high in Republican circles are beginning to believe that there is some concerted effort on foot to utilize the stock market as a method of discrediting the Administration. Every time an Administration official gives out an optimistic statement about business conditions, the market immediately drops."

From Chapter 9: "Aftermath II"

Richard Whitney and larceny

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 186.

"The detailed story of Richard Whitney's misfortunes does not belong to this chronicle. Many of them occurred after the period with which this history is concerned. There is need here to cover only those operations that were deemed to implicate the market.

Whitney's dishonesty was a casual, rather juvenile sort. Associates of the day have since explained it as the result of an unfortunate failure to realize that the rules, which were meant for other people, also applied to him."

From Chapter 10: "Cause and Consequence"

Trying to explain the Great Depression

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 188.

"On the whole, the great stock market crash can be much more readily explained that the depression that followed it. And among the problems involved in assessing the causes of depression none is more intractable than the responsibility to be assigned to the stock market crash. Economics still does not allow final answers on these matters. But, as usual, something can be said."

From Chapter 10: "Cause and Consequence"

Trying to explain the Great Depression

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 189.

"As noted, it is easier to account for the boom and crash in the market than to explain their bearing on the depression which followed. The causes of the Great Depression are still far from certain. A lack of certainty, it may also be observed, it not evident in the contemporary writing on the subject. Much of it tells what went wrong and why with marked firmness. However, this paradoxically can itself be an indication of uncertainty. When people are least sure they are often most dogmatic. We do not know what the Russians intend, so we state with great assurance what they will do. We compensate for our inability to foretell the consequences of, say rearming Germany by asserting positively just what the consequences will be. So it is in economics. Yet, in explaining what happened in 1929 and after, one can distinguish between explanations that might be right and those that are clearly wrong."

From Chapter 10: "Cause and Consequence"

Economy Enjoying a Brief (and well earned) Rest

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 190.

"Neither of these beliefs can be seriously supported. The Twenties by being comparatively prosperous established no imperative that the thirties be depressed. In the past, good times have given way to less good times and less good or bad to good. But change is normal in a capitalist economy. The degree of regularity in such movements is not great, though often thought to be. No inevitable rhythm required the collapse and stagnation of 1930-1940.

Nor was the economy of the United States in 1929 subject to such physical pressure or strain as the result of its past level of performance that a depression was bound to come. The notion that the economy requires occasional rest and resuscitation has a measure of plausibility and also a marked viability. During the summer of 1954 a professional economist on President Eisenhower's personal staff explained the then current recession by saying the economy was enjoying a brief (and presumably well-merited) rest after the exceptional exertions of preceding years. In 1929 the labour force was not tired; it could have continued to produce indefinitely at the best 1929 rate. The capital plant of the country was not depleted"

[TEXT DELETED]

From Chapter 10: "Cause and Consequence"

US economy was fundamentally unsound

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 197 to 202.

"There seems little question that in 1929, modifying a famous cliche, the economy was fundamentally unsound. This is a circumstance of first-rate importance. Many things were wrong, but five weaknesses seem to have had an especially intimate bearing on the ensuing disaster. They are:

(1) The bad distribution of income. [explaining TEXT DELETED]

(2) The bad corporate structure. [explaining TEXT DELETED]

(3) The bad banking structure [explaining TEXT DELETED]

(4) The dubious state of the foreign balance. [explaining TEXT DELETED]

(5) The poor state of economic intelligence. [explaining TEXT DELETED]"

From Chapter 10: "Cause and Consequence"

US economy was fundamentally unsound

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 203.

"It is in light of the above weaknesses of the economy that the role of the stock market crash in the great tragedy of the thirties must be seen. The years of self-depreciation by Wall Street to the contrary, the role is one of respectable importance. The collapse in securities values affected in the first instance the wealthy and well-to-do. But was see that in the world of 1929 this was a vital group. The members disposed of a large proportion of consumer income; they were the source of a lion's share of personal saving and investment. Anything that struct at the spending or investment by this group would of necessiry have broad effects on expenditure and income in hte economy at large. Precisely such a blow was struck by the stock market crash."

From Chapter 10: "Cause and Consequence"

US economy was fundamentally unsound

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 204.

"Had the economy been fundamentally sound in 1929 the effect of the great stock market crash might have been small. Alternatively, the shock to confidence and the lost of spending by those who were caught in the market might soon have worn off. But business in 1929 was not sound; on the contrary it was exceedingly fragile. It was vunerable to the kind of blow it received from Wall Street. Those who have emphasized this vulnerability are obviously on strong ground. Yet when a greenhouse succumbs to a hailstorm something more than a purely passive role is normally attributed to the storm. One must accord similar significance to the typhoon which blew out of lower Manhattan in October 1929."

From Chapter 10: "Cause and Consequence"

Poorly developed self preservations skills

Extracts from "The Great Crash: 1929", John Kenneth Galbraith, First Published 1955, Page 210.

"As noted, all this might logically be expected. It may not come to pass. This is not because the instinct for self-preservation in Wall Street is poorly developed. On the contrary, it is probably normally and may be above. But now, as throughout history, financial capacity and political perspicacity are inversely correlated. Long-run salvation by men of business has never been highly regarded if it means disturbance of orderly life and convenience in the present. So inaction will be advocated in the present even though it means deep trouble in the future. Here, at least equally with communism, lies the threat to capitalism. It is what causes men who know that things are going quite wrong to say that things are fundamentally sound."


[Galbraith: The Great Crash: 1929] | [Galbraith: Culture of Contentment] | [Galbraith: Money]
[Popper: Open Society and its Enemies vol 1] | [Popper: Open Society and its Enemies vol 2]
[Maggee: on the Philosphy of Karl Popper] | [Popper: Poverty of Historicism]
[Beard: An Economic Interpretation of the Constitution of the United States]

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