The Great Crash 1929 - by John Kenneth Galbraith #

Date Read: 2018-11-17 #

Notes #

That we are having a major speculative splurge as this is written is obvious to anyone not captured by vacuous optimism. There is now far more money flowing into the stock markets than there is intelligence to guide it. There are many more mutual funds than there are financially acute, historically aware men and women to manage them. I am not given to prediction; one’s foresight is forgotten, only one’s errors are well remembered. But there is here a basic and recurrent process. It comes with rising prices, whether of stocks, real estate, works of art or anything else. This increase attracts attention and buyers, which produces the further effect of even higher prices. Expectations are thus justified by the very action that sends prices up. The process continues; optimism with its market effect is the order of the day. Prices go up even more. Then, for reasons that will endlessly be debated, comes the end. The descent is always more sudden than the increase; a balloon that has been punctured does not deflate in an orderly way.

There would also be, we may be certain, the traditional reassuring words from Washington. Always when markets are in trouble, the phrases are the same: “The economic situation is fundamentally sound” or simply “The fundamentals are good”. All who hear these words should know that something is wrong.

That much of what was repeated about the market - then as now - bore no relation to reality is important, but not remarkable. Between human beings there is a type of intercourse which proceeds not from knowledge, or even from lack of knowledge, but from failure to know what isn’t known. This was true of much of the discourse on the market. At luncheon in downtown Scranton, the knowledgeable physician spoke of the impending split-up in the stock of Western Utility Investors and the effect on prices. Neither the doctor nor his listeners knew why there should be a split up, why it should increase values, or even why Western Utility Investors should have any value. But neither the doctor nor his audience knew that he did not 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.

The no-business meeting #

Yet to suppose that President Hoover was engaged only in organizing further reassurance is to do him a serious injustice. He was also conducting one of the oldest, most important—and, unhappily, one of the least understood—rites in American life. This is the rite of the meeting which is called not to do business but to do no business. It is a rite which is still much practiced in our time. It is worth examining for a moment.

Men meet together for many reasons in the course of business. They need to instruct or persuade each other. They must agree on a course of action. They find thinking in public more productive or less painful than thinking in private. But there are at least as many reasons for meetings to transact no business. Meetings are held because men seek companionship or, at a minimum, wish to escape the tedium of solitary duties. They yearn for the prestige which accrues to the man who presides over meetings, and this leads them to convoke assemblages over which they can preside. Finally, there is the meeting which is called not because there is business to be done, but because it is necessary to create the impression that business is being done. Such meetings are more than a substitute for action. They are widely regarded as action.

The fact that no business is transacted at a no-business meeting is normally not a serious cause of embarrassment to those attending. Numerous formulas have been devised to prevent discomfort. Thus scholars, who are great devotees of the no-business meeting, rely heavily on the exchange-of-ideas justification. To them the exchange of ideas is an absolute good. Any meeting at which ideas are exchanged is, therefore, useful. This justification is nearly ironclad. It is very hard to have a meeting of which it can be said that no ideas were exchanged.

Salesmen and sales executives, who also are important practitioners of the no-business gathering, commonly have a different justification and one that has strong spiritual overtones. Out of the warmth of comradeship, the interplay of personality, the stimulation of alcohol, and the inspiration of oratory comes an impulsive rededication to the daily task. The meeting pays for itself in a fuller and better life and the sale of more goods in future weeks and months.

The no-business meetings of the great business executives depend for their illusion of importance on something quite different. Not the exchange of ideas or the spiritual rewards of comradeship, but a solemn sense of assembled power gives significance to this assemblage. Even though nothing of importance is said or done, men of importance cannot meet without the occasion seeming important. Even the commonplace observation of the head of a large corporation is still the statement of the head of a large corporation. What it lacks in content it gains in power from the assets back of it.

The no-business meeting was an almost perfect instrument for the situation in which President Hoover found himself in the autumn of 1929. The modest tax cut apart, the President was clearly averse to any large-scale government action to counter the developing depression. Nor was it very certain, at the time, what could be done. Yet by 1929 popular faith in laissez faire had been greatly weakened. No responsible political leader could safely proclaim a policy of keeping hands off. The no-business meetings at the White House were a practical expression of laissez faire. No positive action resulted. At the same time they gave a sense of truly impressive action. The conventions governing the no-business session insured that there would be no embarrassment arising from the absence of business. Those who attended accepted as a measure of the importance of the meetings the importance of the people attending. The newspapers also cooperated in emphasizing the importance of the sessions. Had they done otherwise they would, of course, have undermined the value of the sessions as news.

In recent times the no-business meeting at the White House—attended by governors, industrialists, representatives of business, labor, and agriculture—has become an established institution of government. Some device for simulating action, when action is impossible, is indispensable in a sound and functioning democracy. Mr. Hoover in 1929 was a pioneer in this field of public administration.

As the depression deepened, it was said that Mr. Hoover’s meetings had been a failure. This, obviously, reflects a very narrow view.

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.