America's foremost economist examines the boom-and-bust that led to the stock market crash of 1929. Economic writings are rarely notable for their entertainment value, but this widely admired best-seller is the exception. Galbraith's light touch makes his expert analysis of America's greatest financial disaster a surprisingly engaging listen for anyone.
Galbraith writes for the general audience, which means he not only leaves out most of the arcane details, but he also writes in an engaging style. Galbraith's view is that the great speculative boom that preceded the Great Crash was fueled by not by easy credit, but rather by a mindset that ignored risk and assumed that the market would go ever upwards - in short, a mania. The leverage that helped raise the market to unknown heights, particularly buying on the margin, also built in the means for the sudden collapse. Once the market nosed over, margin calls went out, some were met, many were not, and the market tumbled faster and farther. Galbraith demonstrates that many leaders held onto a `boundless optimism' long after any rational support for such a view had disappeared.
Galbraith's main focus is on the market speculation and its collapse, but he also takes the view that the stock market collapse did in fact contribute greatly to the cause of the Great Depression. Galbraith asserts that the economy was not in strong shape before the stock market collapse. He likens the Great Crash to `typhoon which blew out of lower Manhattan'. The crash in the market struck the rich especially hard and because wealth was so concentrated the subsequent shrinkage in spending and investment by the rich caused serious damage to the economy. While we have significant safeguards in place today that did not exist in the 1930's, we also once again have a concentration of income and wealth eerily comparable to the pre-depression era.
Highest recommendation. Well-written, well-argued, and timely (once again). Readers may also appreciate Galbraith's equally readable A Short History of Financial Euphoria (Whittle)
One thing I appreciate in Galbraith's book, in addition to his treating the subject with some measure of humor, is his avoidance of pat, easy, and overly simplistic answers about what caused the great crash. In the end, he doesn't really know, but says that some measure of each of the following played a part: the monetary imbalance with world economies (with the US being such a huge lender during this period), as well as the sheer intensity of the speculative frenzy, the incredible leverage (90% margins anyone), the lack of a safety net for banking, and the refusal of the government to step in to stabilize markets.
Everyone knows the plot, but Galbraith fills in some nice details. The suicide rate in New York increased by the smallest amount - the legendary mass suicides have no real basis in fact. This is a good book from which to learn the elements of finance - Galbraith explains the terms and concepts, like margin and leverage and shorting - and of course the events he describes provide a wealth of examples.
There is a nice discussion of the connection between the stock market crash and the depression that followed. Galbraith doesn't settle on any particular theory, but just sketches out the most likely suspects.
It's a quick fun read on an essential subject.
A quick read, not hugely educations but very well-written. I'm pretty sure this is the only economic history book which has ever made me laugh out load.