The Great Crash

The Great Crash 1929

John Kenneth Galbraith

By Richard E. Noble

In the introduction to this book Mr. Galbraith states: “But it was plain that an increasing number of persons were coming to the conclusion - the conclusion that is the common denominator of all speculative episodes - that they were predestined by luck, an unbeatable system, divine favor, access to inside information or exceptional financial acumen to become rich without work.”
And then a few pages later he says: “I am a conservative and thus disposed to find antidotes for the suicidal tendencies of the economic system ... The causes of the crash were all in the speculative orgy that preceded it. These speculative episodes have occurred at intervals throughout history, and the length of the interval is perhaps roughly related to the time that it takes for men to forget what happened before. The useful task of the historian is to keep the memory green ... The years following the stock market crash produced a notable outpouring of books, articles, congressional documents, and reports, all exposing Wall Street for what it was ... Moreover, implicit in this hue and cry was the notion that somewhere on Wall Street - possibly at number 23 and possibly on an obscure corridor in one of the high buildings - there was a deus ex machina who somehow engineered the boom and bust. No one was responsible for the Wall Street crash. No one engineered the speculation that preceded it. Both were the product of the free choice and decision of hundreds of thousands of individuals. The latter were not led to the slaughter. They 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 to foster this insanity, and some of them will appear among the heroes of these pages. There was none who caused it.”
Well, first of all, just as I find the statement made by Mr. Galbraith that he is a conservative a rather large stretch or maybe oversimplification of the term conservative, I have similar doubts about the overall disclaimer in the above paragraphs.
I will accept the defense that no “one” man was responsible for the stock market crash, which was then followed by a series of catastrophic events culminating in the Great Depression. But at this point in my investigation I will not accept that this economic tragedy was more or less a random act of (human) nature somewhat comparable to a stamped of a herd of ignorant buffalo.
The second point would be in relation to the notion of an organized conspiracy.
I feel that this is more or less a “straw man” argument, an argument that is set up for the sole purpose of being simple enough to be destroyed, understood and accepted by even a grade school mentality. I am surprised to hear such a sophisticated author and economist in Mr. Galbraith’s category use such an obvious misinterpretation of the historical facts. I feel very confident that he knew better in his heart - even at the time that this book was written.
On the other hand in reading many college professors I do realize that much of their interpretation of events will be slanted by their intensive and sometime myopic investigation into their private and personal areas of intellectual interest.
I also realize that the “class” that one associates himself with or was born into will also have an undue bias and prejudice. For example in reading Winston Churchill one is made clearly aware that Winston was not a blue collar worker who got his education via a government subsidy. In all of Winston’s writing no one is left in any anticipation of hearing a tale of how his daddy came home from work one afternoon with coal dust imbedded into the pours of his face and coughing up blood from his lungs and spitting into his handkerchief due to a difficult day at the mine. The reader understands clearly who Winston was and where he was coming from. I would guess that Mr. Galbraith had a similar background and was from some branch of the upper class. I have read several books by Mr. Galbraith and though I have enjoyed them and learned considerable, I find his writing easily distinguishable from that of Tom Paine, Emma Goldman, William Z. Foster or Elizabeth Gurley Flynn - or even Jimmy Breslin.
The notion that the stock market was ever filled with a preponderance of cab drivers and third floor tenement dwellers from the Bronx is ludicrous. Even in its heyday of “common” popularity the vast majority of the money being invested (wagered) came from the class of the “Best and Brightest”.
Even granting that there were “hundreds of thousands” who had invested in the 1929 stock market this is not suggesting that the stock market is or was egalitarian or of a class-less sort. Ninety-nine percent of the money invested in the stock market of 1929 came from the top 20% of the nations populous - or even less.
Just a few short years before this calamity during the Wilson administration the Pujo committee had investigated the web of
American wealth and had come to the conclusion that the vast majority of this country’s wealth was in the hands or under the direct control of possibly a dozen people.
So to give one the impression that the stock market collapsed because of the general greed and avarice of the American people at large is not only a warped view of what was but I think could be considered an obvious falsification - certainly obfuscation.
I am not contending that the stock market was bankrupted intentionally - but it was the typical greed and avarice of the wealthy class that was responsible. The collapse of the stock market was the selfishness of the wealthy exploding in their own faces. And contrary to the historical legacy, most of the high-rollers received only minor bruises and abrasions - many of the biggest and the brightest actually profited from the experience. Mr. Galbraith tells us of this fact in this book.
The bank failure that followed might be construed as being precipitated by the general public - but this failure was due to the nature of the banking system itself and certainly not the “greed and avarice” of the common people - it had more to do with their fear, trepidation and security. Mr. Galbraith attributes this to the lack of public understanding and education and a general lack of knowledge on how banking and money work in a capitalist system and, of course, to a lack of federal safeguards which were later incorporated by the FDIC.
The industrial collapse that then followed can certainly be laid at the feet of the rich and famous - and here one may be able to find the roots of a legitimate class conspiracy.
Milton Freidman places the blame on the Federal Reserve System. He claims that they neglected to fulfill their mandate by refusing to pump more money into the system. Galbraith claims that it was because of the conservative money attitudes of the times and a lack of understanding of the System even by the experts who were running it. But I would say that this lack of the proper action was all a part of the collective intent of the rich and famous. Why would they (the super-wealthy) pump money into a system that they had purposely drained in order to undermine the revolution of the wage-earner class. Whether they knew or they didn’t know the “right” thing to do was not the question. Their intent and purpose was to do the “wrong” thing - and that is exactly what they did. And when Franklin Roosevelt tried to do the “right” thing - they tried everything they knew to undermine his effort - including assassination and armed revolution.
Here once again the word “conspiracy” presents the problem. Did the twelve wealthiest individuals in the U.S. get together in a room or out on a deserted island and devise a plan to bankrupt America? Maybe not - but they certainly could have. And from what I have read so far there is no reason to believe that they wouldn’t have - if it had been necessary.
A case can definitely be made to establish the fact that the moneyed people of America did remove their capital from the United States and invest it elsewhere. As the old saying goes with regards to great minds thinking similarly - the super-wealthy of that era did not need a meeting to make them aware of what was happening around them.
Mr. Galbraith touches on the problem once again in the introduction to this analysis: “The praise of communism had been extracted from a pamphlet of the National Planning Association dealing with problems of postwar Europe. It noted that the Communists had a better reputation for sincerity and determination in attacking old social grievances and that they also had a solution to the problem of petty nationalism by asserting the loyalty to the worker’s state.”
For the last several years I have been making my own personal study of the Labor movement here in the United States and, as a consequence of that inquiry, that same epidemic about the world. I now realize that without an understanding of the Labor movement any individual is at a serious loss in trying to make any sense of the 20th century.
In Chapter 10, “Cause and Consequence” Galbraith says:
“On the whole, the great stock market crash can be much more readily explained than the depression that followed it.”
I certainly agree with this statement.
Mr. Galbraith, like most economist, seems to believe in the god of economics who controls all via a natural (or unnatural) system of inevitable cycles and principles. He is probably considered a liberal because he believes that governments and societies can prepare for these inevitabilities and even take actions to counteract the obvious.
Conservatives on the other hand believe that what is inevitable is inevitable - it can not be avoided; it will not be avoided. Their answer is that it all simply must be endured. The only problem with this philosophy is that it is always the poor that do the enduring while the rich only have to wait. There is a big difference.
My personal feeling is that the Great Depression didn’t just happen but was caused. It was more a matter of politics and class conflict than economic happenstance. The details and consequences were, of course, not thought out - which is the usual and historical case - with economics as well as war.
Overall, I feel that this is the best book that I have read so far about the Crash. I intend to read it again and give it more thought. Although Mr. Galbraith denies my contention right in the introduction, I found page after page of support for my point of view in his explanations on the pages that followed.
Read it for yourself. It is a good book and Mr. Galbraith has the common touch in his writing - unlike a good many other economists. I find it inspiring and encouraging reading an economist and coming away from the experience feeling that I have understood him well enough to disagree with something. That is clearly a step in the right direction - for him and for me.