Monday, August 17, 2009

The Great Crash 1929 - John Kenneth Galbraith

John Kenneth Galbraith was many things to many people. He was one of the most well recognized economists of his time. (And 'his time' was a pretty long one ... he died in 2006 at the age of 97). He was a prolific author, writing about 50 books on economics in his lifetime. He was a Canadian by birth, American by naturalization, and at least partly, Indian by choice. His contributions to economic theory and practice are wide and varied, if sometimes disputed. The India connection? He was the US ambassador to India for three years under JFK, was a great friend of Nehru and was a recipient of the Padma Vibhushan (India's second highest civilian honor) for his contributions to Indo-US relations.

Of his many books, The Great Crash 1929 is one of the shorter yet more remarkable ones. It was first published in 1954 and has been in print without a break ever since. The publishers (Mariner Books) have released a reprint recently, no doubt smelling opportunity in the distress of 2008-2009, and not-so-subtly implying by timing a sense of parallel to the bleak days of 1929. Mad Money Cramer has also recently taken to the book, and has been brandishing it on his show. Readers of Brick and Rope probably know that I am not a Cramer fan. So his endorsement would in most instances have led me far away from a book. But it was also recommended by Warren Buffett in this year's AGM of Berkshire Hathaway. And yes, in case I haven't said it enough times before, I am a Buffett fan.

The Great Crash 1929 is a book that narrates the economic events of that most momentous of years in America's economic history - 1929. It describes the prevailing national mood and sentiment, the rising popularity of stocks, the crazed search for a way to get a foothold in the equity markets, and the slow inexorable march of markets towards madness. It is important to note that this is not a book about the depression. The subject of the book is the stock market crash of 1929. This crash of course led to the depression that lasted (by different measures) for the next ten years - Unemployment in 1938 was still over 20%. But the book is not about this ten year period. It is entirely focused on the event that started it all, the crash of the stock markets in 1929 - something that started around Oct 15, 1929 and after a period of extreme volatility (including the original Black Thursday Oct 24 and Black Tuesday Oct 29, 1929) reached some level of 'stability' by the end of November. Needless to say, this stability was just a mirage as the market was still to go down - a lot. For almost three more years.

Galbraith is an economist from an era where niceties were still observed, when you didn't have to shout yourself hoarse to be heard over the ambient din of marketing noise. Which makes The Great Crash 1929 a really fun book to read. The tone is always measured. Never does Galbraith seem to go over the top to make any point. In fact, he takes pains to remove all drama from the events of that eventful year. So he shows statistics to prove that there was no increase in suicide rates in 1929 as popular myth goes. He talks about how it is unfair to blame just the availability of credit, or the actions of the regulators, or investment trusts, or Hoover or any other single factor for 1929. Even when he talks of villians in the piece, he politely refers to them with a 'Mr.'. In short, he doesn't feel the need to sensationalize, and the book is all the better for it.

To me, reading the book was like watching a terrible train wreck in slow motion, or seeing the Titanic sink. The book opens with scenes of great merriment all around, a sense that nothing could go wrong with the world and that everyone can be rich. A knot develops in your stomach. And it slowly grows larger as you come closer and closer to October. Starting Oct 17, Galbraith describes the market movements as they transpired every day. This is by far the most entertaining part of the book (it might sound callous, but it is the truth!). Galbraith weaves the tale of how the market moved in a way that was almost designed to bring every player in the market down. First the leveraged speculators went down. Then the 'smart money' came in to hunt for bargains when the market stabilized and even rose for a while. Then they were all taken down too. Then the 'smarter' money came in to buy at these really low levels ... You know the drill. You read the narrative and can't help feeling sick. (I have been congratulating myself recently about my 'smart' decision to enter the market earlier in 2009 to pick up all the bargains I could see. We'll see how that turns out.)

Finally, unexpectedly, The Great Crash 1929 is also a funny book. Galbraith has a cheeky sense of humor and an observant eye for the ironies of the human condition. Much of it is on display in the mellow, tongue-in-cheek good humor that pervades the writing about this otherwise depressing period. I thoroughly enjoyed reading the book. If you are looking for a thorough understanding of the reasons for the Great Depression, this isn't the book. But if you are an observer of the markets and want to know more about the conditions that existed in its worst year, this is about as great a place to start as you are going to get.

1 comment:

  1. Nice review! Given my time famine on the tenure track, I can weave this into class discussion without having read the book!