Once and Future Crash(es)

In 1954 John Kenneth Galbraith published The Great Crash: 1929, analyzing the stock market crash of late 1929, with suggestions about preventing its recurrence. [Quotes are from the 1961 Riverside Press edition.] It shows the high intelligence, serious economic analysis, and the touch of humor that is characteristic of his work.


He said that a new “speculative rampage” in the future (for example, now) would require some sort of rationalization. Since the results of the rampage of the 1920s were so horrendous, no one would want to be accused of setting us up for a replay. So they have to rationalize.

And part of that future rationalization will be to explain why we need less regulation and oversight of financial institutions and of the markets. (Here you should be thinking “Reagonomics.”)

The market will not go on a speculative rampage without some rationalization.

Fear not! Rationalization is something we can definitely provide!

But during the next boom some newly rediscovered virtuosity of the free enterprise system will be cited.
[p 195]

Remember the recent “new economy” in which not only the Dow Jones average but markets in general and the economy in general would just go up and up and up. EVERYBODY would get rich.

We had become so much wiser in the ways of economic life!

It embarrasses me every time I hear the market analysts on NPR. Though nowadays they are relatively sober and sensible, not many years ago they were whole-hog into that “new economy” hogwash. Galbraith warned us 50 years ago that we would easily come up with “some rationalization” when the lust got hot enough; and he was right.


Among the first to accept these rationalizations will be some of those responsible for invoking the controls. They will say firmly that controls are not needed. The newspapers, some of them, will agree and speak harshly of those who think action might be in order. They will be called men of little faith. [p195]

Pardon me if that brings to mind de-regulation, Reagan, Milton Friedman, and all the free market theorists (fantasists) of recent years. Remember radical tax cuts, radical borrowing patterns, “trickle down”? We don’t have to remember them – we’re living them.

A Cynical Preview of Days Ahead

Galbraith ends his book by pointing out that awareness of the errors of the 20’s and early ’30s could stimulate a much wiser approach in the future when the mood of some people waxes speculative again. Unfortunately,

This will not come to pass.

Because wisdom and power seldom walk hand in hand, perhaps least of all in such large scale financial matters. The driving force will be greed, growth-lust, and the feathering of one’s own nest(s). He doesn’t use those words. He uses more gentle terms like “orderly life and convenience in the present.”

Long-run salvation by men of business has never been highly regarded if it means disturbance of orderly life and convenience in the present.

So we hear things like “the fundamentals are sound” – things will stabilize shortly – it’s the whiners and chicken little’s who undermine market confidence; if they would just be still the market would adjust itself nicely.

So inaction will be advocated in the present even though it means deep trouble in the future. Here, at least equally with communism [remember, this was written in the early 50’s], lies the threat to capitalism.

Communism is pretty much gone. That leaves us with this: the great threat to capitalism lies in the irresponsibility of the great capitalists. Imagine that. “Who could have known?”

Wow, is that ever a truth that is currently biting us in the behind! Greed-motivated irresponsibility and corruption do not take kindly to government interference, and they do not bode well for any us.

False God

Greed,” the apostle Paul wrote, “which is idolatry.” We need a bigger and better god than greed, or “Mammon.” It, after all

is what causes men who know that things are going quite wrong to say that things are fundamentally sound.

That sounds so familiar!

And that’s the last sentence of his book. A very timely warning from1954.