Some years, like some poets and politicians and some lovely women,” John Kenneth Galbraith wrote in 1955, “are singled out for fame far beyond the common lot, and 1929 was clearly such a year.”
To talk of eras on Wall Street is most often to imbibe its intoxicants—the Roaring Twenties, the Go-Go Eighties, the Tech Boom Nineties, and so on. But single years—1906, 1987, 2000 and most of all 1929—just as often register as the tombstones of financial history.
Where will 2008 fit into this collective conceit? Our autumn of disintegrating stock markets, disappearing credit and depressing unemployment numbers cannot reasonably be compared with 1929 and its aftermath. Not really. Not yet.
But as traders exude panic and worried Americans read their 401(k) statements and wonder when this equities elevator reaches the basement and how much their new president will be able to do about it, popular evocations of that distant year grow louder and more insistent.
And who better to turn to than the popular chronicler Galbraith?
His theories often ruffled the establishment economists, but few could have exhumed the financial apocalypse with more wit and panache than he did in his book The Great Crash, 1929. The well-respected, if sometimes controversial, history dealt with the consequences of high interest rates and lack of regulation, foolish adherence to gold standards and a maldistribution of income akin to today’s.
But the book is perhaps most intriguing for its depiction of the delusion that swept the culture, and the ways financiers and bankers, wishful academics and supine regulators willfully ignored reality and in the process encouraged the epic collapse of the stock market.
No dreadful year is the same as another, particularly when that year is an epochal disaster. But similarities can be seen and parallels drawn between the culture of that time and today, when bubble followed bubble even as champions of the market insisted that all was fine.
Galbraith wrote his book while the crash remained branded on the national consciousness. Quite a few Americans still feared stock bubbles and speculators, shared a desire to regulate the financial sphere and harboured the inchoate conviction that a financier’s wealth should not be conflated with wisdom. Galbraith offered his account as a sort of warning against regarding the manias of 1929 as ancient history.
“It is worth hoping,” Galbraith wrote, “that a history such as this will keep bright that immunizing memory for a little longer.”
He was a Keynesian economist, an adviser to president John F. Kennedy and an ambassador to India, but some have argued that in his critique of 1929, Galbraith gave short shrift to monetary policy. Milton Friedman, who as a conservative economist was a lifelong intellectual adversary of the liberal Galbraith, said he offered work that was “not so much economics as it is sociology.”
Galbraith proudly wore the cloth of the heretic; he adored lancing what he saw as economic pretension.
And in time, critics such as this year’s Nobel Prize winner in economics, the New York Times columnist Paul Krugman, came to embrace Galbraith’s view that rising income inequality (a point Galbraith hammered on in The Great Crash) was not simply a technical question—as Krugman once argued—but rather was rooted in power and politics.
Robert H. Frank, a visiting scholar at New York University’s Stern School of Business and author of Luxury Fever: Why Money Fails to Satisfy in an Era of Excess, says that Galbraith should have won the Nobel Prize. He “was right about a lot of the big things, but he didn’t offer the sort of reasons and theories that passed muster with neoclassical economics.”
What was foolish in the human condition never failed to amuse Galbraith, and tends to echo today, for example when he pokes at the financial experts and Fed bankers whose soft purrings about the “fundamental soundness” of the economy encouraged Americans toward the 1929 precipice.
In that distant age, so much sounds as if recorded yesterday, if more poetically. The academic urge to unearth new paradigms and forecast bounteous levels of stock wealth seems eternal. In 1999, a year before the tech bubble popped, two authors offered Dow 36,000, a book that forecast that the stock market could triple within five years. That did not happen.
And in November 1929, the Harvard Economic Society offered this serene forecast: “A severe depression is outside the range of probability. We are not facing protracted liquidation.” This view, Galbraith noted, “the Society reiterated until it was liquidated”.
Wealth, and the mania for more, infiltrated every corner of 1920s culture, a phenomenon as recognizable to the habitues of TriBeCa lofts in 2005 as to the flapper. Galbraith noted in particular the rise of the literate broker.
Still, Galbraith recoiled from the censorious. He was not inclined towards corporate defenestration. Bubbles breed greed, which in turn breeds complicity in banker suites, hucksters and the common man or woman intent on capturing a gilded thimbleful of that wealth.
The populist urge to hoist a banker—or perhaps in modern terms an AIG executive—from a lamppost is primal but not particularly useful.
Galbraith wrote, “There is little reason to think that the power of the great bankers, while they were assumed to have it, was much resented. But as the ghosts of numerous tyrants from Julius Caesar to Benito Mussolini will testify, people are very hard on those who, having had power, lose it or are destroyed.”
Galbraith warned against reading his account as premonition. American capitalism pitches into a ditch from time to time, but a Great Depression is a rare event. As Galbraith noted at his book’s end: “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.”
Like 1066, 1776 and 1914, it is a year that everyone remembers. One went to college before 1929, was married after 1929, or wasn’t even born in 1929, which bespeaks total innocence. A reference to 1929 has become shorthand for the events of that autumn.
For a decade, whenever Americans have been afflicted with doubt as to the durability of their current state of prosperity, they have asked: “Will it be 1929 all over again?”
©2008/The New York Times