A Random Walk Through the Rubble (February 1988 | Volume: 39, Issue: 1)

A Random Walk Through the Rubble

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Authors: Peter Baida

Historic Era: Era 8: The Great Depression and World War II (1929-1945)

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February 1988 | Volume 39, Issue 1

How much did we lose?” my wife asked me on the day the stock market sank like a stone last October. I did some quick arithmetic and answered, with remarkably good cheer under the circumstances, that we had lost only a little more than two times our annual income.

To cushion the blow, I quoted Mark Twain. “October,” he wrote in Pudd’nhead Wilson, “This is one of the peculiarly dangerous months to speculate in stocks. … The others are July, January, September, April, November, May, March, June, December, August and February.”

My wife was not amused. “Will we have a depression?” she asked. We had intended to go out for dinner, but even a modest meal at the Chinese restaurant across the street suddenly seemed extravagant. That decision, multiplied ten billion times, was what the experts were talking about on television, using phrases like “the effect on consumer spending.”

Will we have a depression? was the question Jim Lehrer asked the Nobel Prize-winning economist from MIT. He used more elegant language, but I sensed that the Nobel Prize-winning economist wanted to say exactly what I had said when my wife asked the same question: “How the hell am I supposed to know?”

Later that night, I sat down to see what I, an intelligent layman, could learn about stock market crashes and depressions from people who had really studied them.

For the general reader, John Kenneth Galbraith’s The Great Crash, 1929, originally published in 1955, remains the most readable, if not the final, account of the market collapse that ushered in the Great Depression. Galbraith’s gift for tart commentary makes him an ideal guide to a period in which, as he says, “great drama” was joined with “a luminous insanity.”

 

Galbraith takes special satisfaction in the discomfiture of the “official optimists” whose pronouncements fueled the bull market. Comments by Bernard Baruch (“the economic condition of the world seems on the verge of a great forward movement”) and Professor Irving Fisher of Yale (“stock prices have reached what looks like a permanently high plateau”) prepare us for the response of Herbert Hoover after the market plunged: “The fundamental business of the country … is on a sound and prosperous basis.”

In general, Galbraith comments, “the greater the earlier reputation for omniscience, the more serene the previous idiocy, the greater the foolishness now exposed.” But his book is not merely a study of foolishness in high places. It is a study of universal foolishness. “No one was responsible for the great Wall Street crash,” he concludes. “No one engineered the speculation that preceded it.” That speculation was entered into freely and even joyfully by hundreds of thousands of individuals who “were not led to the slaughter” but “were impelled to it by the seminal lunacy” that convinces people that they are destined “to become rich without work.”

When he considers whether the crash caused the Depression, Galbraith grows cautious. The