The Great Crash 1929 by Galbraith: Chapter 9 - "Cause and Consequence"

Summary        

Gross National Product 1920-1940

        After the Great Crash, came the Great Depression. With the Gross National Product a third less than 1929 and production remaining below 1929, people hoped to return to the 1929 but the conditions between 1930 to 1940 continued to culminate into a depth of severity. 

        Initial issues involved assessing the cause of the depression. Some speculated the lack of credit and some contemplated the rate of interest, but much concentration was directed to faith. Professor Dice observed that people no longer look upon the cardinals of industry as benevolent leaders. Such feelings of trust were believed to be fundamental for a boom. Furthermore, an abundance of savings was viewed as essential for prosperity. However the ensuing collapse 
automatically destroys the very conditions that conduce such results. Despite such predictions, the causes were still viewed with uncertainty. Some skeptics believed that depression was inevitable because the extent of time in which it occurred or that there was an inevitable rhythm to which depression must follow. Neither of these dubious beliefs can be seriously supported. A plausible explanation was the notion that the economy required an occasional rest.

Major Causes of the Great Crash of 1929

        However, more efforts were devoted in revealing the reasons the economy continued to remain low for a full decade. Some believed that production had outrun consumer and investment demand as corporations misjudged the prospects of consumers. As a result, businesses curtailed their inventory and invested insufficient amounts, failing to keep pace with the steady increase in profits. Others pinpointed the bad distribution of income. With a third of the America's income dispensing into 5%, the economy was dependent on a high level of investment or luxury consumer spending from the elites. Furthermore, structures of corporations were corrupted with openings for swindlers, frauds, and impostors. 
         On the other hand, some deemed the actual infrastructure of the bank. There was implicit weakness with the chain reaction banks faced. When one bank failed, the assets of the other failed like a domino effect. Others took a more honest approach with the poor state of economic intelligence. As Hoover announced a cut in taxes, he requested business firms to keep up their capital investment and maintain wages. However, tax reductions were negligible except to higher income brackets and maintaining wages and investments only occurred as long as they were not financially disadvantageous. Furthermore, a commitment to a balanced budget meant a drastic reduction in government expenditures, which led to the limitation of efforts to increase low interest rates, plentiful credit, and smooth borrowing of funds.

Great Crash of 1929

John Kenneth Galbraith

         As a result, the Great Crash of 1929 manifested quite a few far reaching effects. With the collapse of securities, the wealthy are the first to take hit and expenditures to support the economy are abandoned. Furthermore, the weakness of corporations are exploited and the people suffer from a sense of utter hopelessness. As a economic historian, Galbraith asserts that the task of him and this book is only to address what happened in 1929. And it is that misfortune awaits those who presume to believe that the future is revealed to them, and that capitalism is indeed a threat. 


Analysis
        The theme presented in the chapter aligns with work, exchange, and technology, and specifically with economic values and the role of the government in affecting society. As a result of the Great Crash of 1929, economic values are shifted more into becoming aware of possibilities of overproduction of goods and cautiousness of over speculation of stocks. Furthermore, the government is less liberal for Laissez Faire Capitalism and devoted more into expenditures for the economy's well being.
        A time period which is similar to the chapter is Period 7: 1890-1945 (Key Concept: 7.1-I.C)
Despite credit and market instability with the uneven distribution of wealth, over speculation of stocks, and over production of goods, a stronger financial regulatory system arises with leaders such as Hoover.

Citations

"A Case of Unemployment." The Great Depression. Accessed March 14, 2015. 

    http://ingrimayne.com/econ/EconomicCatastrophe/GreatDepression.html.

"Biographical Profiles: John Kenneth Galbraith." - John F. Kennedy Presidential Library 

   & Museum. Accessed March 14, 2015. http://www.jfklibrary.org/Research/Research-

   Aids/Ready-Reference/Biographies-and-Profiles/John-Kenneth-Galbraith.aspx.

Galbraith, John Kenneth. "Cause and Consequence" In The Great Crash, 1929, 

    168-194. Boston: Houghton Mifflin, 1955.

Mugey, Admin. "A Brief History Lesson: The Great Stock Market Crash of 1929, 82 

    Years Ago Today. » Mugsy's Rap Sheet." A Brief History Lesson: The Great Stock 

    Market Crash of 1929, 82 Years Ago Today. » Mugsy's Rap Sheet. October 29, 2011. 

    Accessed March 14, 2015. http://mugsysrapsheet.com/2011/10/29/a-brief-history-

    lesson-the-great-stock-market-crash-of-1929-82-years-ago-today/.

"Speculation Great Depression - Viewing Gallery." Speculation Great Depression - 

    Viewing Gallery. Accessed March 14, 2015.

The Great Crash 1929 by Galbraith: Chapter 7 - "Aftermath I"

Summary        

Ivar Kreuger

        However, as the Great Crash of 1929 began to worsen, the organized support was futile, and with such cataclysm came the advent of multiple suicide waves. With the stock market crash, life was no longer worth living as depicted with the substantial increase in suicides. Broken speculators began being consort with propensities for self-destruction. 

        Unfortunately, newspapers merely seized on suicides to evince that people were reacting appropriately to their misfortunes. Stories of violent self-destruction began to appear in the papers with some regularity with instances such as jumping from a window, diving into water, and taking gas. Suicides that received much attention were that of J.J. Riordan and Ivar Kreuger.

Union Industrial Bank
Flint, Michigan

        However, the effect of the crash on the embezzlement was more significant than that on the suicide. Embezzlement, in simple terms, is the shifting of stocks in a inconspicuous manner. The crime begins as the embezzlement is undiscovered due to conducive conditions. However, as the rate of embezzlement grows, it shrinks as depression appears and money is watched with a narrow, suspicious eye. The stock market exaggerated the normal relations of this process. People began exceptionally trusting and transitioned to extraordinarily dubious. Such reports are evident in the defaulting of employees as daily occurrences and looting of the Union Industrial Bank of Flint, Michigan.

Short Selling

        The crash, needles to say, was mortal. Unfortunates were revealed in their misery and the crash exposed the corrupt speculators. However, with such morality, came the last efforts at reassurance. The New York Stock Exchange began an investigation of the short selling of Jesse L. Livermore, who was believed to be driving the market down. Simultaneously, the Wall Street Journal complained that abundance of short selling and the egregious market. However, nothing came of Livermore's study.

President Hoover

         A more important effort at reassurance was conducted by President Hoover. At the time the general index of the industrial production was falling. As a result, Hoover announced to cut the taxes of the individuals and corporations by one full percentage. Such drastic reductions may at sight have seemed insignificant, but it revived a ambience of confidence. Furthermore, Hoover conducted one of the oldest, most important rites in America. He conducted the no business meetings. Such meetings were held to transact no business but merely just to relay ideas, coined as the exchange of ideas justification. They were a practical expression of laissez faire and a device for simulating action, when action is impossible. Such efforts by Hoover compensated for the influx of suicides and embezzlements but prospects of future continued to look bleak.

Analysis
        The theme depicted in this chapter aligns with work, exchange, and technology, and specifically how the growth of corporate power influences economic policies. With the previous growth of the holding companies and the corporations in the New York Stock Exchange, economic policies are now transformed to give the advantage to individuals in the capitalist market. Self prosperous actions such as embezzlements and short selling are conducted by corporations and people like Union Industrial Bank of Flint, Michigan and Jesse L. Livermore. 
        A time period which is similar to the chapter is Period 7: 1890-1945 (Key Concept: 7.1-I.C)
With credit and market instabilities such as the embezzlements and the short selling, call to a stronger financial regulatory system was taken up by Hoover. With the advent of the traditional no business meetings, Hoover devised the methods of taking action when action was impossible.

Citations

"Buy Postcards - Union Industrial Bank Building, Flint, Michigan 1943 - BidStart (item 

     25557598 in Postcards : United States : Michigan : Flint)." Union Industrial Bank 

     Building, Flint, Michigan 1943. Accessed March 14, 2015. 

     http://postcards.bidstart.com/Union-Industrial-Bank-Building-Flint-Michigan-1943-

     /25557598/a.html.

Galbraith, John Kenneth. "Aftermath I" In The Great Crash, 1929, 
    128-143. Boston: Houghton Mifflin, 1955.

"Ivar Kreuger." Wikipedia. Accessed March 14, 2015. 

    http://en.wikipedia.org/wiki/Ivar_Kreuger.

Rothbort, Scott. "How Short Selling Works." TheStreet. October 8, 2007. Accessed 

    March 14, 2015. http://www.thestreet.com/story/10383365/1/how-short-selling-

    works.html.

"United States Presidential Election, 1928." Wikipedia. Accessed March 14, 2015. 

    http://en.wikipedia.org/wiki/United_States_presidential_election,_1928.

The Great Crash 1929 by Galbraith: Chapter 5- "The Crash"

Summary
        By the autumn of 1929, the economy had faced a catastrophe: a depression. The industries and factories culminated to an apex and then plummeted, followed by the fall of the stock market. It was believed by many that the economy, too, was headed for trouble. In order to console themselves during such an adverse situation, terms such as preventive incantations were grasped. It elucidated that the stock market was not fundamentally conducive to instigate such drastic conditions. It emphasized that the true factors would comprise of production, employment, and spending, all of which remained unaffected. Thus, people continued to emphasize that depression was unreal.

Massachusetts Department of Public Utilities

        However, in reality, depression was indeed a predicament. There were an abundant amount of variations for explanations; however, a plausible speculation was that there was a serious shock to the confidence which infected pessimism into the speculators, leading to dramatic drops in sales.
        Two primary reasons were believed to have caused the drop in confidence, the first of which was the collapse Clarence Hatry. Hatry was renowned for developing an enterprise in the coin-in-the-slot vending and later shifted to the slot vending and automatic photograph industry. However, his decline in 1929 struck a sharp blow to the confidence in New York. Additionally, the refusal of Massachusetts Department of Public Utilities to allow the schism of Boston Edison's stocks from four to one increased the injury with insult. The department suggested that the "present value of the stock was due to the actions of the speculators."

New York Stock Exchange

        However, confidence did not disintegrate at once. The New York Stock Exchange sales increased and a lead story concerning Ivan Krueger, previously inaccessible to journalists, was garnered. Additionally, Professor Irving Fisher claimed to "expect to see the stock market a good deal higher."
        Unfortunately, on October 19, circumstances were reversed again. More compelling indications of an depression were depicted as the market was behaving very badly. Times believed "the end had come." No immediate explanation of the break was forthcoming. Wall Street was at its worst.

Irving Fisher

        But with such tribulations, hope was not lost. Organized support convened to provide aid. A group of powerful people organized to keep the prices of the stocks at a reasonable level. As a result, the market seemed to be displaying the facility to recover. Fisher again commented that he felt the boom "had not caught up with their real value and would go higher." Charles E. Mitchell claimed that "too much attention had been paid to the large volume of brokers' loans, and concluded that the situation was one which would correct itself if left alone."
        However, on October 24, it was the first day in history in which panic was consorted with 1929. The tides escalated to a whole, new level. Prices fell farther and faster. Stories degenerated into wild, mad scrambles to sell. Markets had surrendered to blind, relentless fear. And suicide waves were in progress. Panic was here.

Richard Whitney

        With the 1st initial panic in action, a miracle rose to appease the disaster. The organized support reappeared with the lead of Richard Whitney, who was expected to manage the affairs of the Exchange, brought much capital back into the market. Many had good reason to be grateful to the financial leaders of Wall Street. This execution led to the start of the laying of the foundation of the constructive advance which would end up characterizing the 1930s. The bankers had displayed both their courage and their power in times of desperate need, but things were about to get more serious.






Analysis
        The theme presented in the chapter aligns with work, exchange, and technology, and specifically with the role of the government in affecting society. As a result of the economic depression, the role of the federal government has shifted to more of a liberal approach. With the New York Stock Exchange and the stock market incapable of controlling the financial markets, individuals such as the leaders in the organized support and Richard Whitney took initiative to address the issues of the economy. As a result, the federal government has took less intervention in the economic life since the 19th century, allowing for popular ideas to emerge and consolidate such as capitalism and free market.
        A time period which is similar to the chapter is Period 7: 1890-1945 (Key Concept: 7.1-I.A)
Despite the exponential growth of the economy with the stock market and the bonds, credit and market instabilities such as from the crash of the stock market has led to the rise of a stronger financial regulatory system with the advent of the organized support led by Richard Whitney.

Citations

"Fuel Assistance, Weatherization and Conservation | Action Energy, Gloucester, Mass." Fuel 

    Assistance, Weatherization and Conservation | Action Energy, Gloucester, Mass. Accessed March 

    14, 2015. http://actioninc.org/energy_funding.html.

Galbraith, John Kenneth. "The Crash" In The Great Crash, 1929, 
    88-107. Boston: Houghton Mifflin, 1955.

"IntercontinentalExchange to Buy New York Stock Exchange Euronext for $8.2 Billion." IBNLive. 

    December 21, 2012. Accessed March 14, 2015. 

    http://ibnlive.in.com/news/intercontinentalexchange-to-buy-new-york-stock-exchange-euronext-  

    for-82-billion/311649-7.html.

"Irving Fisher." Wikipedia. Accessed March 14, 2015. http://en.wikipedia.org/wiki/Irving_Fisher.

"New York Stock Exchange Vice President Richard Whitney." - U508221INP. Accessed March 14, 

    2015. http://www.corbisimages.com/stock-photo/rights-managed/U508221INP/new-york-stock-  

    exchange-vice-president-richard.

The Great Crash 1929 by Galbraith: Chapter 3 - "In Goldman, Sachs We Trust"

Summary

Supply and Demand

        After issues regarding economic instabilities with the Federal Reserve, there is new agitations to the domestic stock market with the "scarcity value." Common stocks no longer seem prevalent and are running out. This result can be referenced to the response of supply and demand. With the desire of people to purchase stocks at a pinnacle, it was without a doubt that the stocks would be scarce.

Market Boom of 1929

        New visions also spur such as the focus of capital. Small companies merge with larger companies not merely to eliminate competition but to dominate industries and attain control over productions and investments. The fundamental centralizing component was under the holding company system. Under holding companies, or lead companies, operating companies, smaller companies, would be purchased to increase securities and stocks at the expense of taking over existing companies. However, occasionally, companies would abide with corporate chains. These institutions would allow for the establishments of new outlets and expansion. In addition to organization, new companies arise to optimize capital. However, the Market Boom of 1929 is primarily influenced by existing enterprises. New, fanciful industries play a relatively trivial part. 

       However, soon enough, the solutions are garnered for the dearth of stocks with the investment trusts. This system basically allowed for the rearrangement of corporate securities and assets without a direct relationship to enable securities to be available according to market reactions, eliminating anxiety of possible shortage of common stocks. Furthermore, investment trusts are supplemented with investment companies. Their role is to advise for the common man auspicious sectors to invest in to engender funds, enabling more productivity. Originally, such corporations were few in existence and were obligated to adhere to rigid regulations and reveal investments. Regulating corporations such as the New York Stock Exchange and the Committee on the Stock List were cynical to investment corporations. However, by the autumn of 1929, investment trust had increased approximately elevenfold since the beginning of 1927 and credibility was being formed.

Investment Trusts

        Simultaneously, sponsorship of trusts are being executed. Usually, companies filed a management contract in which the sponsor ran the investment trust, invested the companies's funds, and obtained a fee reflective of the percentage of capital earnings. This procedure was facilitated with public appraisal and advocation and the influx of investment banking firms.

John J Raskob

         However, on the non corporate centered side, John J Raskob endeavored for equal opportunity. He believed that everyone should be in on the kind of opportunities he himself enjoyed. To implement this idea, Raskob proposed the Raskob plan. Unlike investment companies, companies under the Raskob plan would recieve money from clients and take charge in purchasing stocks and relay a portion of the benefits attained from the sales. From the public, approbation and admiration is received for the value of professional financial knowledge. A new strategy is born for increasing the value of securities and new competitions for reputable men ensue. 

        Within such a blossoming ambience, some were apprehensive of the future. Paul C. Cabot believed that dishonesty and greed were prevalent shortcomings of the new industry. However, his admonitions were undermined with responses of contempt. The twilight of illusion was near.

Analysis

        The theme that is manifested is primarily of work, exchange, and technology. Debates over economic values influencing the society is depicted with the advents of corporations such as investment companies and companies aligning with the Raskob plan because people are beginning to form connections and find value in their economy now. The prospect of attaining money attracts people to partake in the stock market. Furthermore, strategies advocating change to economic system can be displayed with the holding company system and the management contract. New strategies are endorsed to promote efficacy and optimize capital.

        A time period that aligns with the chapter would be Key Concept 7.1-7.1.A. The consolidation of corporations with management contracts and holding companies influence Americans to enhance economic growth because as companies begin to dominate sectors in the economy, people form an urge to be a part with the advent of investment companies and companies of Raskob plan.

Citations
Galbraith, John Kenneth. "In Goldman, Sachs We Trust" In The Great Crash, 1929, 
    43-65. Boston: Houghton Mifflin, 1955.
"John J. Raskob." Who Was John J Raskob. Accessed March 14,      
    2015. http://www.evi.com/q/who_was_john_j_raskob.
Right, Avenue. "Advertising Inventory and Rates: Part 1 - Supply and Demand." 
    Advertising Inventory and Rates: Part 1 - Supply and Demand. Accessed March 14,          
    2015. http://avenueright.com/entries/45/advertising-inventory-and-rates-part-1--- 
    supply-and-demand.
"Stock Market Crash Articles & Newspapers." Stock Market Crash Newspaper. 
    Accessed March 14, 2015. http://www.archives.com/genealogy/newspapers-
    stock-market-crash.html.
"Tokyo Realty Investment Management, Inc." Real Estate Investment Trust -. 
    Accessed March 14, 2015. http://www.jpr-reit.co.jp/trim/trim_e/reit.html.

The Great Crash 1929 by Galbraith: Chapter 1 - "Vision and Boundless Hope and Optimism"

Summary

President Coolidge

        In 1928, President Coolidge views the economic relations within both the domestic and foreign scope as "sound" in contrast to historians who assail him for maintaing "superficial optimism." They concur with the liberal misanthropes who believe the schism between the rich and poor is becoming perpetual. However, Coolidge, himself, has truth to his perspective as the economy is developing a level of stability and capitalism is attaining a "lively phrase." 

        This auspicious vision for the industry is supplemented with the fantasy like hope for an effortless gain of wealth. Such examples are manifested with the Florida real Estate Boom of 1925. Within Florida, there was a mixture of speculation and statistical assurance with the rise of profits gained from sales. However, with the advent of the catastrophic hurricanes, there was a slight drop in the supply of new buyers. Despite this setback, Florida continued to have a boom, as it was associated with the Riviera of America, which was magnificence; as a result, people were reluctant to expunge their belief in the "effortless enrichment" of the stock market.

Florida Real Estate Boom

        However, there is ambiguity to the origins of the stock market boom. In the last months of 1924, prices of securities began to rise and had a setback in February of 1926. In April of 1926, the market renewed again but dipped in October with the hurricane in Florida, gradually recovering at the end of the year. Then in 1927, Henry Ford's closure of Model T for the preparation of Model A insinuated talks of depression but was elevated by the time of production. However, there is a paramount moment in 1927 that foments, what is believed by the Federal Reserve Board, as the demise of the stock market of America through a "generous but ill advised" act. The act is classified as internationalism. As British transitioned into a new system of pounds to purchase goods and erupted in strikes during 1926, United States enacted the easy money policy to aid Britain. Whether this policy engendered the great crash is uncertain; however, the simplicity and facility to exonerate American society called upon such speculation geared towards foreign influences.

Federal Reserve Board

        Thus, by 1928, even the most conservative minds could realize the rise in stocks and profit margins. However, 1928 marked the return of speculation and escape from reality. Prevalence of such actions were evinced with gains of 10 to 15 to 20 points in the market within a single day and the Stock Exchange, which is coined as a theory in which the basic law of prices is directly correlated with the interaction of supply and demand, began to be influenced from components such as personal affiliations and murky ideas like "destiny" and "big men" (people who had power). Impressive candidates associated with the term big men were John J. Raskob, William Crapo Durant, The Seven Fisher Brothers, and Arthur W. Cutten. Far greater indicators were the skyrocketing shares. March 12 3,875,910 shares were traded. March 27 4,790,270 shares were traded. June 12 5,052,790 shares were traded. November 16 6,64,250 shares were traded. 

Process of Stocks: Securities & Loans

        Therefore, capitalism was termed as a "genius" with its prospect of profit for corporations. Buyers also acclaimed the system for their benefits with securities, which are increases in value of stock, without the increase in the loan, which was the initial product purchased. Despite the fact that earnings were lower than loans, speculators invested at the chance of capital gain. Both sides believed Wall Street's ability to separate speculation from burdens of ownership was "beautiful." 

Analysis

        Through "Vision and Boundless Hope and Optimism," the predominant theme employed is work, exchange, and technology. Economic policies influencing the American society is manifested as market capitalism instigates optimism. Like president Coolidge, who associated capitalism with liveliness, and the people in Florida, who became inured to beliefs of "effortless wealth," capitalism spurred the rise of elated sentiments. In addition, capitalism is bolstered with skyrocketing shares and the stock exchange. As a result, capitalism was depicted as "genius," allowing for the growth of the stock market and speculation, which will be further explored in the next chapter. A

        A particular time period of relation would be that of the Gilded Age (Key Concept: 6.3 I). Economic policies such as capitalism are beginning to rise as new cultural movements as capitalism is becoming associated with interpersonal movements such as the idea of "effortless wealth." This movement eventually engenders an obligation for reform as the Great Crash ensues.

        From the author's style and narrative is one of great formalities and credibilities. Appropriate word usage and precise dates and statistical numbers further his validity.  Aspects of interesting appeal are areas in which he employs theories or rationales such as "men sought not to be persuaded of the reality of things but to find excuses for escaping into the new world of fantasy" and "in the growth of boom, property ownership becomes irrelevant except the prospect for an early rise in price." However, areas of confusion include usage of aphorisms and metaphors which require supplementary knowledge apart from the book such as "courage is required of the man who, when things are good, says so" and "Wall Street, in these matters, is like a lovely and accomplished woman who must wear black cotton stockings, heavy woolen underwear, and parade her knowledge as a cook because, unhappily, her supreme accomplishment is as a harlot."

Citations

Coca, Onan. "Meet My Favorite President - Calvin Coolidge! - Eagle Rising." Eagle Rising. January 
    23, 2015. Accessed February 13, 2015. http://eaglerising.com/14239/favorite-president-calvin- 
    coolidge-words/.
Colombo, Jesse. "The 1920s Florida Real Estate Bubble." RSS. June 26, 2012. Accessed February 
    13, 2015. http://www.thebubblebubble.com/florida-property-bubble/.
Galbraith, John Kenneth. ""Vision and Boundless Hope and Optimism"" In The Great Crash, 1929, 
    1-24. Boston: Houghton Mifflin, 1955.
"Principles of Finance/Section 1/Chapter/Financial Markets and Institutions/Federal Reserve." - 
    Wikibooks, Open Books for an Open World. Accessed February 13, 2015. 
    http://en.wikibooks.org/wiki/Principles_of_Finance/Section_1/Chapter/Financial_Markets_
    and_Institutions/Federal_Reserve.
"Securities Lending Explained." PASLA -. Accessed February 13, 2015.    
    http://www.paslaonline.com/static3.html.