Analysis of The Great Crash by John Kenneth Galbraith - Book Report/Review Example

The Great Crash, 1929: Lessons for the Future Does history repeat itself? The age old adage may ring true, especially when it comes to an analysis of John Kenneth Galbraith’s impressive work, The Great Crash, 1929. Written more than a half century ago, The Great Crash explores which factors lead to the Great Depression in 1929 and seeks to provide a comprehensive analysis of the precursors to the worst economic crisis in American history. The terms “Great Depression” and “Great Crash” will be used synonymously throughout this essay since they refer simultaneously to the same event: the economic collapse of 1929 and the ensuing economic and social crises for much of the Western developed world. Although exploring an event which occurred more than eighty years ago and having been written in 1954, John Kenneth Galbraith’s The Great Crash by remains just as relevant today as it did more than a half century ago when it was first published. Seeking to explore the lessons of John Kenneth Galbraith’s The Great Crash today, this essay will attempt to understand the lessons put forth by this important tome with respect to future financial strategy. What strategies articulated by this book are relevant today? What are the advantages as well as the disadvantages of the strategies put forth in The Great Crash, 1929? What can we learn from this event and apply to today’s context? These questions, and many more, will be analyzed with respect to the lessons for the future and strategic aims provided by The Great Crash, 1929. The United States in presently in the worst financial crisis since the Great Crash of 1929. In the wake of the Cold War, the United States of America emerged as the dominant global economic and military power and ushered in a new world order of capitalist-inspired economic growth and prosperity. Virtually uncontested at the helm of the world’s strongest economy, the United States has recently witnessed ominous signs of an impending economic meltdown. A variety of factors precipitated the current economic crisis, an event which draws parallels with the Great Depression eighty years ago. Some of the precursors to the current financial crisis include the implosion of the American sub-prime lending market, a mortgage market in crisis and an induced credit crunch with global ramifications. Banks for foreclosing, people are losing their homes and the international economic situation is precarious as global lenders are closing their doors and filing for bankruptcy. The correlations with this financial crisis to the Great Crash of 1929 are so similar that it is eerie. Attempting to understand the reasons for the Great Depression, John Kenneth Galbraith analyzed the economic situation in the United States leading up to the Crash and outlined the preconditions for the crisis. Seeing the rise in speculation as perhaps the most important precondition for the Great Crash of 1929, Galbraith emphatically argues that an economy based upon speculation, such as through stocks, bonds, currencies, real estate, derivatives, and commodities is inherently unstable from a macroeconomic perspective and prone to a burst in the speculative bubble. Optimism is a characteristic of the speculative investor and Galbraith argues that an economic system with a speculative basis is liable to crash and subsequently a shaky basis for an economy. In addition to the risks caused by a speculative market, income inequality, so pervasive in the United States during the period further contributed to an unstable economy and this income distribution imbalance exacerbates instability. Accordingly, when “5 per cent of the population with the highest incomes in that year [1929] received approximately one third of all personal income", an economic crisis is sure to be on the horizon. Additional antecedents to the collapse include a weak banking structure, imbalance in foreign trade, weak economic intelligence and problems in the structure of US corporations. He argued that as economic actors, corporations in America were structured to contribute to the deflationary cycle as opposed to opposing it (Galbraith 102-206). Strategies outlined by Galbraith to limit the eventuality of a future economic crash are varied and provide lessons for the future to ensure that a crisis like the Crash of 1929 never occurs again. Lessons for the future include correcting the imbalance of foreign trade, restructuring the banking system to safeguard against inherent instability within the markets, the restructuring of US corporations to make them less predatory, proper income redistribution within the United States and a lessening of the dependence on speculation for the market to function. The Great Crash, 1929 is incredibly timely in light of the current global economic meltdown and although Galbraith provided strategic economic aims to ensure that an event like the Great Depression never occurs again, it is obvious that his forewarnings more than half a century ago have gone unheeded. Importantly, strategic economic aims provided by The Great Crash of 1929 include a lessening of the dependence on speculation as the backbone of the economy and further redistribution of wealth to ensure that a total reorientation of the engines of production takes place. Accordingly, when persistent income inequality is a feature of a domestic economy, the system itself will remain untenable and prone to implosion. Remembering the mistakes of the past is also an important strategic aim advanced by Galbraith and an understanding of what happened in 1929 is, according to this author, the best way to ensure that an event similar in magnitude to the Great Crash of 1929 never occurs again. Works Cited Galbraith, J.K. 1992. The Great Crash, 1929. New York: Penguin Books. Read More