With a Bang and a Whimper
Seligman, Ben B.
THE GREAT CRASH, 1929, by John Kenneth Galbraith. Houghton, Mifflin Co., Boston. 1955. 212 pages. $3.00. When John Kenneth Galbraith, the noted Harvard economist, testified recently before...
...the first indication of the mood of the Twenties and the conviction that God intended the American middle class to be rich...
...He tells how Richard Whitney went onto the floor of the New York Stock Exchange and ostentatiously placed orders to buy some 20 different stocks...
...The major point, though, which the author does not make clear, is that the Open Market Committee was at this time dominated by the New York Federal Reserve Bank, so that private rather than public interests were paramount...
...Those who could do something about the boom didn't want to...
...When John Kenneth Galbraith, the noted Harvard economist, testified recently before the friendly Fulbright committee on the condition of the stock market, prices took an uncomfortably familiar tumble...
...Charles E. Mitchell of the National City Bank told everyone that all was well...
...The book, exceedingly well written, is not without touches of wry humor...
...At the end of the book Mr...
...In such a milieu it was little wonder that few people understood what was coming...
...Mr...
...All three were later to face the courts on charges of assorted financial skullduggery...
...But this also might have affected adversely the banks' earning power...
...Galbraith, how the market became a central factor in American culture although there were only about a million and a half people afflicted with its frenzy...
...Early in that year stock prices began to move up and the actions of the big speculators like John Raskob and William Durant were carefully observed by all the little speculators...
...But he does supply the face-saving proviso that a speculative collapse might fracture these new buttresses at unex-pected points...
...But this was kept secret...
...Galbraith's view, as set forth here, might be interpreted as a devil theory of the big crash, something he doubtless does not intend...
...The great American capacity for self delusion is unchanged, says Mr...
...If one were to be uncharitable, all this might be credited to the fertile brain of some publicity man anxious to see that Mr...
...Curiously enough, the only person who was disturbed by what was happening was the new president, Herbert Hoover...
...Galbraith, who explains quite lucidly open market operations and the rediscount rate mechanism, feels that the Federal Reserve was caught in a pathetic dilemma...
...The speculative madness began as early as 1925, when options to buy options to buy imaginary land in Florida swamps brought illusory riches to several thousand persons...
...However, such a stunt would have been quite unnecessary, for Wall Street's current spree must itself raise the ghost of Black Thursday: Mr...
...had stopped the 1907 panic...
...He feels that such an explanation tends to absolve the financial market from responsibility, since Wall Street could then say that other forces were at fault...
...There were all the little people dreaming of golden riches to be garnered by dealing in intangibles...
...Galbraith, and he is convinced that speculation could still run riot despite all the built-in stabilizers installed in the last 25 years...
...As Mr...
...Most commentators say that the Federal Reserve System, as the nation's central banking structure, could have put a checkrein on the runaway market...
...Had the Federal Reserve sold securities in sufficiently large quantities it might have drained cash away from the money market...
...While it is true that we cannot acquit the old-time financier for his part in the debacle, it does seem more reasonable to trace the basic causes for the market collapse and the ensuing hard times to more durable factors...
...When that happens we had all better head for the hills...
...The author is patently an entertaining historian...
...In the meantime, people made millions, on paper, while the authorities wrung their hands...
...Galbraith had been quite stern and warned that we were behaving exactly as our fathers did in 1929...
...As this went on, the Crash became a Depression and the country was edified with periodic assurances that prosperity was peeking out from some distant corner...
...There were the home-made financial geniuses with excess cash building new utopias out of furiously rising capital gains...
...The Big Bang came on Thursday, October 21...
...That is to say, Mr...
...Galbraith recognizes that all this is a history that can be repeated, but he is certain it would not have the same effect...
...the banking system suffered from mismanagement and a curious kind of inflexibility bordering on rigor mortis...
...There were the frantic mergers of corporations, not only to eliminate competition but to provide new securities for an insatiable stock market...
...Galbraith admits that the entire economy was fundamentally unsound in 1929: income was distributed in a most lopsided fashion, necessitating a high level of investment or luxury consumption or both...
...Howard Hopson of Associated Gas fame issued bromidic pronouncements...
...It was not until several years later, when banking reforms were instituted, that Washington took the power to control money away from New York...
...At the very start, for example, he questions the usually accepted proposition that things were going wrong long before stock prices began their slide into depression...
...a loose corporate structure permitted the setting up of pyramided holding companies, dubious promotions and outright frauds...
...It was remarkable, says Mr...
...Galbraith merely underscores in this eminently readable history events that may very well haunt us once more...
...However, Mr...
...Social security, a better tax system, an increased understanding of the economy—all this, he intimates, will reduce the nerve-shattering shock of another stock market crash...
...Panegyrics to perpetual prosperity were sung by such economic oracles as Roger Babson and Irving Fisher...
...the United States deluded itself that it could sell shiploads of goods to other countries while advising them to peddle their wares elsewhere...
...There were the investment trusts, grotesque prototypes of what are today called mutual funds...
...Present day behavior on the part of several thousand "lambs" gives sufficient reason to suspect that at least in this regard he is right...
...He avers that the increased share of income going to the middle and lower income groups and the New Deal reforms, especially the Securities and Exchange legislation and bank insurance, provide a stronger cushion now than was available then...
...Galbraith relates how the nation's top bankers met to stop the downslide as J. P. Morgan, Sr...
...Some of the parallels with contemporary events are indeed disturbing...
...Galbraith remarks, this was...
...Galbraith's new book received a proper audience...
...Yet, he says, it was not until 1928 that the boom really got out of hand...
...it is only when he essays the realm of high theory that he goes astray, as in his American Capitalism: The Theory of Counter vailing Power and in certain parts of this book...
...and economic science itself was rooted in an archaic 18th century liberalism that offered shamanistic incantation instead of intelligent policy...
Vol. 2 • July 1955 • No. 3
