Galbraith writes with great wit and erudition about the perilous actions of investors, and the curious inaction of the government. He notes that the problem wasn't a scarcity of securities to buy and sell; "the ingenuity and zeal with which companies were devised in which securities might be sold was as remarkable as anything." Those words become strikingly relevant in light of revenue-negative start-up companies coming into the market each week in the 1990s, along with fragmented pieces of established companies, like real estate and bottling plants. Of course, the 1920s were different from the 1990s. There was no safety net below citizens, no unemployment insurance or Social Security. And today we don't have the creepy investment trusts--in which shares of companies that held some stocks and bonds were sold for several times the assets' market value. But, boy, are the similarities spooky, particularly the prevailing trend at the time toward corporate mergers and industry consolidations--not to mention all the partially informed people who imagined themselves to be financial geniuses because the shares of stock they bought kept going up. --Lou Schuler

Product Description
Of Galbraith's classic examination of the 1929 financial collapse, the Atlantic Monthly said:"Economic writings are seldom notable for their entertainment value, but this book is. Galbraith's prose has grace and wit, and he distills a good deal of sardonic fun from the whopping errors of the nation's oracles and the wondrous antics of the financial community." Now, with the stock market riding historic highs, the celebrated economist returns with new insights on the legacy of our past and the consequences of blind optimism and power plays within the financial community.

While the US had stock market crashes before and since 1929, the ensuing 10-15 year long Great Depression makes the 1929 crash unique. It would have been interesting if Galbraith had examined several other crashes and discussed that uniqueness. No such luck. With the exception of holdouts like Galbraith, nearly all economists of every school of thought recognize that the Crash and the Great Depression were at least partly the result, not of government neglect but of fatally flawed government policies. Yet, Galbraith persists in advocating those very same policies as his prescription for curing what he perceived caused the Crash. Galbraith's basic thesis is that the Crash was due to hysterical speculation and overextended credit on securities, which occurred because the government had a hands-off policy. However, despite providing example after example of the failure of governmental meddling (which enabled many of the abuses he mentions) Galbraith illogically insists that the government didn't do enough!

One of the reviewers below claims that laissez-faire advocates wax apoplectic over Galbraith because he "mercilessly punctures their myth of permanent economic expansion." I believe that the earlier reviewer may have confused touts of ever-onward-and-upward stock prices for laissez-faire advocates. Furthermore, this reviewer does keep track of such things and is certain that had economic growth actually ended, it would have made the newspapers by now. It seems to this reviewer that in the years since the nation's founding, economic growth has been endless - although it has been better in some periods than others. I guess everyone embraces the myth that most comforts them.

However, when analyzing economics, data work much better than myths. Economic data can't really be analyzed without at least a basic framework of economic understanding. Without that framework, one is ill-suited to determine if what Galbraith says is true or not. Just because Galbraith or any author says something that happens to resonate with our own philosophy or prejudices, the fundamental question should be, "Does it line up with the facts or with reason?" Unfortunately, Galbraith's conclusions too often do not.

This book has been in print since its publication, and is often referred to as definitive by many people, although it invariably is the only book on the subject most of those people have read. It is at best a superficial and ultimately unsatisfying discussion of the Crash. Galbraith is a good writer who is able to make his points clearly and has a good command of anecdotes of that time; but by all means, read as many other books on the subject as you can, and you will see that he brings very little that is convincing to the discussion.


Exploring the 1929 crash in elegant prose   October 29, 2003
 43 out of 46 found this review helpful

Economics, like physics, has a fundamental canon: you cannot make money out of nothing. To narrate the history of financial bubbles is to chronicle those times when people overlooked that fact. In those instances, asset prices soar merely to be resold for profit, with little regard as to their actual value; when something shakes confidence and buyers are in short supply, a crash follows as prices were sustainable only insofar as they could be resold higher.

According to John Galbraith, the stock-market crash that took place in the fall of 1929 was typical of this prototype. Mr. Galbraith, a Harvard economist, traced the optimism to the Florida real-estate bubble of 1925 which made people forget the elementary rules of money making. What follows is an elegant narrative that interweaves economics with history to produce one of the most telling and lucid accounts of the developments, economic and otherwise, that lead up to the October 1929 crash.

The crash, according to Mr. Galbraith, was caused by an admixture of bad income distribution (economy too dependent on luxury spending and investment), bad corporate structure, bad banking structure, foreign imbalances, and bad economic intelligence. In seeking compelling explanations, the "Great Crash" often resists conventional wisdom: for example, to those who blame the abundance of credit, Mr. Galbraith answers: "on numerous occasions before and since credit has been easy, and there has been no speculation whatever." Mr. Galbraith looks beyond central banking and interest rates to compile a rich and diverse history of the 1929 crash.

So what about preventing future crises? Here, Mr. Galbraith is ambivalent. Regulation has and can play a substantial role in preventing future troubles. But the problem lies elsewhere: people continue to believe that they have been blessed, and that they can make money with little or no effort. When wise men see such folly and decide to partake in it rather than spoil it, a bubble that later crashes is inevitable. For all those who seek an economic solution to this economic problem, Mr. Galbraith surely disappoints. The surest protection against over-speculation, he writes, is to remind people that you can never get something from nothing. Those in love with central banking might find the idea simplistic, yet its beauty lies with its simplicity.


Very relevant today   February 10, 2002
 28 out of 30 found this review helpful

Recall the talk before the bust of the "New Economy," in which distended P/E ratios and lack of profits were to be irrelevant. Recall Enron's public proclamations of its stability and projected earnings increases. Keep these in mind as you read The Great Crash, and you will be very, very skeptical of analysts, to say nothing of executives.

Galbraith's theme is that market stability and corporate interests are fundamentally at odds. After pumping up prices by gambling with borrowed money, the financiers and executives simply hope to cash in and make it out alive. In the ensuing crisis, CEOs will never speak evil about their own companies or the condition of the market, so their speech is about as useful to an investor as a pre-game pep talk is to a bettor. Analysts, as well as executives, are salesmen of their own stock, and their primary objective is to get you to buy high.

Galbraith is a talented storyteller, and he highlights themes that are likely to accompany future bubbles so that the reader knows what to be skeptical about. This is a very entertaining read, and if you actively compare what Galbraith tells you of the 20's to what you know about the 90's, you'll likely not be swept away by future investing mania.

* * *

2008 Update:

Having learned a thing or two since I wrote that, I can think of no book better suited to explain our current predicament to the layman. Excessive leverage, housing bubble, financial deregulation, and crony capitalism -- sound familiar? You'll read about this stuff happening back in the '20s and shake your head in disbelief.


What Actually Happened in 1929?   October 24, 2001
 19 out of 20 found this review helpful

Having just lived through the crash of the dot-com stocks, I thought it was a particularly appropriate moment to reread John Kenneth Galbraith's famous history of the stock market crash of 1929 in the United States. Professor Galbraith's final words prove to be prophetic as he suggests that as soon as the lessons of 1929 are forgotten, the speculative excesses that led to that debacle will recur. I am sure that when the dot-bomb experience is forgotten, it will be repeated with some new class of speculation in some future generation.

With the recent experience of seeing a market mania, I came away more impressed with this book than before. Professor Galbraith does a fine job of capturing the psychology that builds into and sustains a mania. He also writes like a novelist rather than like an economist. That talent makes the message easy to grasp and appreciate.

I was also impressed by how our popular perceptions of 1929 are so often wrong. For example, most people believe that many "broken" speculators committed suicide. Although some did, there was no significant rise in the suicide rate compared to a general trend in that direction.

Economists often like to fault the Federal Reserve for the crash. That blame seems somewhat misplaced when you learn that there was very little government debt that the Fed could repurchase to create liquidity. Had the Fed acted differently, the crash might have come a little sooner and not been quite so severe . . . but the fundamentals would probably not have changed too much.

Another misperception is that everyone was speculating. By even the most generous measures, the speculators probably never numbered over a million people.

Although this is a history, Professor Galbraith takes on the economic question of how the crash contributed to the Depression. Although we know very little about the economic details of 1929, I was impressed by the point about how much consumer spending was concentrated in the wealthiest people. As they lost vast sums, both spending for consumer goods and savings for capital were decimated. With the broader income distribution of today, such a cataclysm would not be so harmful (as we saw in the aftermath of the dot-com crash).

There is an excellent parallel discussion of the land boom in Florida earlier in the 1920's that is very rewarding. I was intrigued by the ways that ever increasing ways of extending leverage were created so that both bubbles could climb higher. In Florida, people didn't actually buy the land. They bought options to buy the land, and traded those. In the stock market, holding companies sold stock and then floated new holding companies. These were capitalized with common stock, preferred and debt so that all of the appreciation would accrue to the common holders. Naturally, the opposite occurred on the way down. Many stocks fell by over 99 percent, as a result.

Everyone who is tempted to buy any item primarily because it is thought to represent an opportunity for a quick buck should read this book.

Look for true value in all that you do!

A must read for a research paper   January 31, 2000
 18 out of 22 found this review helpful

I'm a junior in high school doing a research paper on the stock market crash of 1929. Without reading this book I would be left in the dark. Reading 6 other books, Galbraith is the only author who writes in a language that is easily understandable to someone who does not know how to calculate a beta ranking for a stock.