‘The Great Crash’ by John Kenneth Galbraith

Book Review |

by Jamie Lutton
- For The Capitol Hill Times - 

Enough time has passed since 2008 that I can recommend this book about the stock market crash of 1929. For a while there, the pain of what we were all going through the last four years might make a reader leery about picking this book up.

Written in 1954, it is an excellent short history of the time, written with mordant wit and clarity.

Economics always seems to be a very dense subject study, with its reliance on theory and special terminology. Galbraith has written many other dense, academic books on American economics and economic problems. He was a follower of John Maynard Keynes, and had worked in President Franklin D. Roosevelt’s cabinet on inflation control during World War ll. He has a long list of credentials as a Keynesian economist, now sadly very out of fashion.

But this book is friendly, and not dry and academic. It does not assume the reader knows very much about the behavior of stockbrokers, bankers, and the public in the 1920s, and makes the gyrations of this time clear and understandable. The reader will learn about buying on the margin, and the general euphoria of the time, which drove stocks up far higher than any possible value they might have had.

I first read this book about 2004, when experts were dolefully watching the rise of real estate prices. Experts on the sidelines could see that the real estate market was wildly inflated, as the price of houses had risen far higher than a reasonable multiplier of the income of the people in the market. But easy money and clever loan practices caused people to buy vastly overpriced houses for fear of being totally cut out of the market. We all know the result.

I read this book three or four times over and over as I nervously watched the economy. With it in mind I could tell a real crash was coming.

In the late summer of 2008 an author I had worked for had invited me along on a vacation he went on. I took my battered paperback copy of “The Great Crash” to read again at the beach. I heard the author complain about the stock market, and I strongly urged him to get out of the market. I was persuasive enough to make him act on my advice. On that vacation, he called his broker back in the states, and told him to sell.

Shortly after that, the market collapsed, and my advice saved my friend $75,000.

The Crash is one of those rare friendly history books that I categorize as a “bridge” book because it makes a dense or difficult subject easy to understand. The very best bridge books can ignite a passion to read more on the subject, and follow the author’s path back to the original sources, to read more.

The day-by-day account of what Wall Street and the players there went though in October of 1929 is relevant, considering what we have all gone though in the last five years.

The book also explains that, opposed to what many understand, the worst was not over by November of 1929. In fact, the market kept going down until 1932. The unemployment rate accelerated, until a full third of American workers were out of work and bank failures occurred daily. As a result, after the crash many people who were not ruined thought it was safe to go back into the market to pick up bargains and lost their shirts too. People feared we would have a violent revolution, like that of Russia, only 20 years earlier. Only with the advent of F.D.R.’s presidency, and the measures he took, was a real turnaround possible, though slow.

The U.S. and the European Union have faced a similar slow recovery since 2007, or as in the case of the E.U., a catastrophic failure of austerity measures. Instead of Keynesian measures being taken to ameliorate the effect of the depression on workers, the headlines this week and for many weeks speak of mass protests and riots in Spain, and Athens where the population, facing unemployment up to 50 percent, have taken to the streets – much as many unemployed Americans did before 1932, when F.D.R. was elected.

So, this book is quite topical, and perhaps I can make it even an urgent recommendation.

Galbraith author upset many people when this book was first published in 1954. He had been called to testify at a Senate hearing about the historical crash. While he was testifying, by coincidence, the New York stock market turned south for a number of weeks after a bit of a run up.

He was inundated with hate mail of all sorts, some quite explicit, including death threats. When he broke his leg skiing a few weeks after his testimony, he received letters praising Divine Providence for his accident.

So, 1954 was a time very like our own, prone to hysteria. The best and longest (and funniest) version of this story is available in the second edition of this book.

You can read other columns by Jamie Lutton, owner of Twice Sold Tales, and her business partner John Watkins at booksellersvsbestsellers.