The history in the 20th century was overwhelmingly economic. The advances of technology, productivity, and organizations along with the material wealth of human mankind expanded beyond all previous imagining. Although the economic forces were still developing; the early 20th century was still very incompetant. Little was known or learned about how to manage a market. Kenneth Galbraith’s analytical text entitled “1929:The Great Crash,” effectively demonstrates the validity of his thesis that a frightening prelude to the stock market crash of many years ago was ignorance complimented by complete societal unexpectedness. With impeccable consistency, the author asserts that the summer just before October 1929’s economically devastating crash was one marked by both a superficial affluency and an unwarranted optimism.
According to Galbraith, even many of the financially-intelligent could not see it coming. In speaking of the Federal Reserve System’s weekly returns from 1929, he writes,”Each Friday this report showed a large increase in loans; each Friday it was firmly stated that it didn’t mean a thing, and anyone who suggested otherwise was administered a stern rebuke.” (P. 68). With such comments, the book effectively begins to paint a picture of a society who may have had at least some reason to fear for their economic health, and yet who continued to adamantly ignore any potential warning signs.
Elaborating the lack of relevant economic awareness that 1929’s society exhibited, Galbraith uses an entire section of one particular chapter to illustrate a semi-cycle in which during the preceding summer, analysts were extremely optimistic about the economic outlook and then by September, there approached a turning point in which there was finally some concern. By the end of the month, however, when there was no disruption in economic productivity, those who warned of forthcoming difficulties, withdrew their theories that expected–and no one would dare predict such an economic failure…the stock market did indeed crash.
Of course, it must be noted that there was not so much a failure to foresee the great crash of 1929 as there was a failure to listen to those who did predict its possible arrival. One example cited on page 72, was that of Paul M. Warmburg of the International Acceptance Bank who urged for a tighter Federal Reserve Policy with the warning that current conditions were inevitably aimed at instigating a collapse. Most notably, Warmburg is quoted as having said,”It would bring about a general depression involving the entire country.” Clearly, such representations are indicative of the fact that October 1929’s crash was not a complete economic surprise to all.
So why then was the general population and even the majority of the financially educated so markedly convinced that there was nothing to worry about ? According to what can be both directly interpreted and casually inferred from the book, the relevant media played a large role. Well-reputed journalists were going so far as to accept large sums of money to write favorably about the stock market. The Daily News and other widely-read papers whose opinions were respected by the public, consistently told stories of the nation’s undying affluency and promising future. With so little common media educating the public about reality, American society had no choice but to wholeheartedly believe that the nation was and would continue to be prosperous with the stock market as a chief ingredient for success.
From a philosophical perspective, Kenneth Galbraith writes on page 75 that, “Between human beings there is a type of intercourse which proceeds not from knowledge, or even from lack of knowledge, but from failure to know what isn’t known.” Hence, the inherent realities of the book’s thesis concerning true definitive ignorance can be seen in one sentence. Galbraith would probably assert even further that it is our societal responsibility to learn that which can not be learned from others, and then to teach others. In other words, we must constantly create new knowledge based upon our own individual analytical capabilites. Therefore, it should have been up to society to analyze, learn about and better predict the Great Crash. But it is that communicative failure between those who know and those who think that they know, that causes catastrophes such as these.
With particular reference to the book’s preface, Galbraith is not shy to illustrate how frighteningly ignorant we were just eight years ago as well. This is accomplished by citing the similarities between 1929 and the crash of the late 1980’s. As weeks passed after the more recent stock market crash, an alarming likeliness became apparent. In the first six months after each crash, the Dow Jones industrial average followed nearly identical paths, recovering much lost ground. And in April 1930, economists and businessmen were speaking optimistically about the economy, just as they were in 1988, after the last crash.
But in late April 1930, stock prices started to decline, and they fell without interruption for two years, leading to the Great Depression. The factors that brought on the depression do not exist in the same manner today. But yet at points, Galbraith seems to warn that the nation’s current economic difficulties such as the budget and trade deficits, the worldwide industrial competition, trade issues, and the huge pileup of corporate and Third World debt, could still bring on yet another a recession.
What happened on October 19th of 1987 is vivid enough so that the crash has become a symbol that means, basically, ‘don’t be too sure’ and ‘let’s watch out.’ And in fact, it is important to realize that for these reasons- Galbraith’s book was re-printed. In analyzing and re-interpreting his thesis, it is indeed most helpful to realize that this book was originally written well-before the crash of the 80’s, and therefore its inherent goals for informative productivity can not be directly related. But to watch out and to ‘not be too sure,’ seems to be an integral value that the author wishes to instill in his readers.
The decline from 1929-32, they say, came about largely as a result of the Great Depression, marked by widespread bank failures, a falling money supply, rising trade wars and other woes. I believe that a recurrence of such events is really quite improbably in our contemporary economy due safeguards like federal insurance on our bank deposits, Social Security, and farm price support. Part of Galbraith’s 207 page-long lecture seems to revolve around the fact that the government now has overall responsibility for coming to the support of the economy, which it did not then.
But then again, my rationale that a re-occurrence is unlikely seems so frighteningly similar to those which counter-predicted the Great Crash of 1929. In fact, if I learned anything from Galbraith’s book, I should be exceptionally weary of any overly-optimistic or confident predictions concerning the economy. Although unfortunate, it is now apparent to me that economics can not be discussed without scrutinizing every possible disaster and accepting them as a potential reality.
And in fact, the recent crash blatantly ended a certain speculative fever that rapidly augmented prices until 1990. According to a book review and commentary, in the months before October 19th in the 80’s crash, Galbraith, had reportedly warned that speculation was creating a rise in stock prices and the inevitable outcome of speculation was to be a crash. Hence, we again see the sound assertion that pessimism is more important that optimism when analyzing the stock market from a macroeconomic perspective.
Galbraith, John Kenneth. 1929:The Great Crash. Boston :Houghton Mifflin Co,
printed in 1997.
Economist/Author Speaks on Crash. San Jose Mercury News. April 17th, 1988;
P. 1E. *Internet Obtained (Via America On-Line)
The Cato Journal/ vol.16 No.2
“The Growth of the Federal Government in the 1920’s”.