Saturday, 22 September, 2001

Book Review: The Great Crash

In 1954, John Kenneth Galbraith wrote a book called The Great Crash about the causes and effects of the 1929 stock market crash.  I read the third edition of the book, which was published in 1972 but is essentially unchanged from the original.  At 200 pages, this is a very short history of the crash, but well written and very engaging.  The first few pages sucked me right in, and I finished the book in two evenings.

Here's the funniest thing about the book.  Substitute "1929 stock market crash" with "2000 technology sector crash" throughout the book, and it reads almost the same.  Sure, some names are different and the stock trading laws are more stringent now than they were in 1929, but the story is essentially the same.  "Boundless hope and optimism."  In 1929, people were buying shares in "investment trusts" that invested in other stocks (and other investment trusts, oddly enough).  But the prices paid for the investment trust shares were way out of proportion to the value of the assets actually held by the trusts.  In 1999 and 2000, people were buying shares in technology companies that had never turned a profit and had no visible way of ever making a profit.  No essential difference.  The book is worth reading just for the deja vu experience.

I found the discussion of the aftermath more interesting than the events leading up to it, if for nothing else than it dispels some common misconceptions.  The great post-crash suicide wave of 1929, for example, simply didn't happen.  And although the crash may have contributed to the severity of the Depression, it certainly wasn't one of the root causes.  The economy was fundamentally unsound for many reasons, the stock market not being one of them.

All in all, I found the book informative and enjoyable.  Galbraith's writing shows that you can take an informal tone without completely butchering the English language.  What a pleasure to read.