On The Great Crash 1929

I recently finished reading The Great Crash 1929 by John Kenneth Galbraith.

As John best summarizes it: “The task of this book, as suggested on an early page, is only to tell what happened in 1929. IT is not to tell whether or when the misfortunes of 1929 will recur. One of the pregnant lessons of that year will by now be plain: it is that very specific and personal misfortune awaits those who presume to believe that the future is revealed to them. Yet, without undue risk, it may be possible to gain from our view of this useful year some insights into the future. We can distinguish, in particular, between misfortunes that could happen again and others which events, many of them in the aftermath of 1929, less improbable. And we can perhaps see a little of the form and magnitude of the remaining peril. ”

A great book that captures the environment and culture that lead up to the market collapse in 1929. The learnings are timeless and can easily apply to the financial crash of 2008 as they did back in 1929. A highly recommended read for anyone interested in finance, economics, investing and/or regulation.

Below are excerpts from the books that summarize key learnings:

1- “No one can doubt that the American people remain susceptible to the speculative mood – to the conviction that enterprise can be attended by unlimited rewards in which they, individually, were meant to share. A rising market can still bring the reality of riches. This, in turn, can draw more and more people to participate. The government preventatives and controls are ready. In the hands of a determined government their efficacy cannot be doubted. There are, however, a hundred reasons why a government will determine not to use them.”

2- “It follows that the only reward to ownership in which the boomtime owner has an interest is the increase in values. Could the right to the increased value be somehow divorced from the other and now unimportant fruits of possession and also from as many as possible of the burdens of ownership, this would be much welcomed by the speculator. Such an arrangement would enable him to concentrate on speculation which after all, is the business of a speculator. Such is the genius of capitalism that where a real demand exists it does not go long unfilled. In all great speculative orgies devices have appeared to enable the speculator so to concentrate on his business.”

3- “One of the oldest puzzles of politics is who is to regulate the regulators. But an equally baffling problem, which has never received the attention it deserves, is who is to make wise those who are required to have wisdom…For these people, however, every proposal to act raised the same intractable problem. The consequences of successful action seemed almost as terrible as the consequences of inaction, and they could be more horrible for those who took the action.”

4- “Between human beings there is a type of intercourse which proceeds not from knowledge, or even fro lack of knowledge, but from failure to know what isn’t know… Wisdom, itself, is often an abstraction associated not with fact or reality but with the man who asserts it and the manner of its assertion.”

5- “Mark Twain – Don’t part with your illusions; when they are done you may still exist, but you have ceased to live.”

6- “Thus viewed, the stock market is but a mirror which, perhaps as in this instance, somewhat belatedly, provides an image of the underlying or fundamental economic situation. Cause and effect run from the economy to the stock market, never the reverse.”

7- “Bagehot – Every great crisis reveals the excessive speculations of many houses which no one before suspected.”

8- “Moreover, regulatory bodies, like the people who comprise them, have a marked life cycle. In youth they are vigorous, aggressive, evangelistic, and even intolerant. Later they mellow, and in old age – after a matter of ten or fifteen years – they become, with some exceptions, either an arm of the industry they are regulating or senile.”

9- “Far more important than rate of interest and the supply of credit is the mood. Speculation on a large scale require pervasive sense of confidence and optimism and conviction that ordinary people were meant to be rich. People must also have faith in the good intentions and even in the benevolence of others, for it is by the agency of others that they will get rich…Savings must also be plentiful. Speculation, however it may rely on borrowed funds, must be nourished in part by those who participate…Finally, a speculative outbreak has a greater or less immunizing effect. The ensuing collapse automatically destroys the very mood speculation requires. It follows that an outbreak of speculation provides a reasonable assurance that another outbreak will not immediately occur.”

10- “There seems little question that in 1929, modifying a famous cliche, the economy was fundamentally unsound…five weaknesses seem to have had an especially intimate bearing on the ensuing disaster. They are: 1) The bad distribution of income, 2) The bad corporate structure, 3) The bad banking structure, 4) The dubious state of the foreign balance, 5) The poor state of economic intelligence.”

11- “Here, at least equally with communism, lies the threat to capitalism. It is what causes men who know that things are going quite wrong to say that things are fundamentally sound.”


Omar Halabieh

The Great Crash 1929

The Great Crash 1929


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