Déjà Vu All Over Again

The Great Crash 1929J K Galbraith

The trading floor of the New York Stock Exchan...

The trading floor of the New York Stock Exchange in 1930, just six months after the crash of 1929 (Photo credit: Wikipedia)

I was inspired to read this after Keynes: The Return of the Master and because of its towering reputation. But, to be honest, the first 100 pages or so left me wondering what all the fuss was about. My edition (borrowed from the University of York library) began with a description of how its author found himself, momentarily, at the heart of some red baiting after evidence, based on the research for the book, he gave to a Senate committee caused a minor market hiccough. That was the most engaging part of the opening half of the book – though it is an even more interesting story in the context of the whole text (it seems that some people believe so strongly in their right to make money without work that only a conspiracy can explain away their coming to grief).

But the book was worth persisting with – because as the tale goes on the relevance to the events of the last decade becomes clearer (and, as an additional bonus, one gets a better perspective on the F. Scott Fitzgerald‘s work). What begins as a story of 1920s crookedness does flower into a big story of how and why speculative markets fail and even why recessions turn to depressions.

America’s reaction to the 1929 Crash was the New Deal which, as the book makes clear, was not any sort of Keynesian programme, but rather a wave of regulation. The New Deal essentially failed as a means of riving the economy – or rather it’s impact was much less than its backers hoped for. But it did help create the climate that allowed America to power ahead in the 40s and 50s. Crucial to that was the disarming of the prophets of unrestricted markets – the combination of market failure and sheer crookedness leaving them exposed. Today we ought to have the same – after all the rottenness of much of the financial sector has been exposed and we have had the worst global economic retreat since the 1930s, but I do not sense that we have entered an era of a new worldview on the role and purpose of markets.

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