Tuesday, July 21, 2009

John Kenneth Galbraith´s "The Great Crash"

Having started reading John Kenneth Galbraith´s "The Great Crash: 1929" I cannot help but make a few observations. An old and esteemed professor of mine used to tell us that what was important in critical reading and writing was to answer these three questions: "What does it say? What does it mean? What difference does it make?" Today I can only address the first of these questions, saving the rest for later, hopefully. But back to the first chapter of "The Great Crash."

"[F]or a generation Democrats have been warning that to elect Republicans is to invite another disaster like that of 1929. The defeat of the Democratic candidate in 1952 was widely attributed to the unfortunate appearance at the polls of too many youths who knew only by hearsay of the horrors of those days."

"Historians and novelists always have known that tragedy wonderfully reveals the nature of man. But, while they have made rich use of war, revolution, and poverty, they have been singularly neglectful of financial panics. And one can relish the varied idiocy of human action during a panic to the full, for, while it is a time of great tragedy, nothing is being lost but money."

"On the whole, the greater the earlier reputation for omniscience, the more serene the previous idiocy, the greater the foolishness now exposed. Things that in other times were concealed by a heavy facade of dignity now stood exposed, for the panic suddenly, almost obscenely, snatched this facade away."

"No one was responsible for the great Wall Street crash. No one engineered the speculation that preceded it. Both were the product of the free choice and decisions 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."

"It has long been my feeling that the lessons of economics that reside in economic history are important and that history provides an interesting and even fascinating window on economic knowledge."

"Finally, a good knowledge of what happened in 1929 remains our best safeguard against the recurrence of the more unhappy events of those days. Since 1929 we have enacted numerous laws designed to make securities speculation more honest and, it is hoped, more readily restrained."

"The signal feature of the mass escape from reality that occurred in 1929 and before - and which has characterized every previous speculative outburst from the South Sea Bubble to the Florida land boom - was that it carried Authority with it. Governments were either bemused as were the speculators or they deemed it unwise to be sane at a time when sanity exposed one to ridicule, condemnation for spoiling the game, or the threat of severe political retribution."

The relevance and parallels to the current crisis should be obvious.

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