The Great Crash, 1929 was first published in 1955 and has been continuously in print ever since, a matter now of forty years and more. Authors (and publishers) being as they are, the tendency is to attribute this endurance to the excellence of the work. Evidently this book has some merit, but, for worse or perhaps better, there is another reason for its durability. Each time it has been about to pass from print and the bookstores, another speculative episode—another bubble or the ensuing misfortune—has stirred interest in the history of this, the great modern case of boom and collapse, which led on to an unforgiving depression.
One of the subsequent episodes occurred, in fact, as the book was coming from the printer. There was a small stock market boom in the spring of 1955; I was called to Washington to testily at a Senate hearing on the past experience. During my testimony that morning the stock market went suddenly south. I was blamed for the collapse, especially by those who were long in the market. A fair number of the latter wrote to threaten me with physical injury; a more devout citizenry told me they were praying for my ill health or early demise. A few days after my testimony I broke my leg while skiing in Vermont. The papers carried mention. Letters came in telling me of prayers that had been answered. I had at least done something for religion. In the mood of the times a senator from Indiana, Homer E. Capehart, said it was the work of a crypto-Communist.
That was only the beginning. The offshore-funds insanity of the seventies, the big bust of 1987, less dramatic episodes or fears, all brought attention back to 1929 and kept the book in print. And so again now in 1997.
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.
To repeat, I make no prediction; I only observe that this phenomenon has manifested itself many times since 1637, when Dutch speculators saw tulip bulbs as their magic road to wealth, and 1720, when John Law brought presumptive wealth and then sudden poverty to Paris through the pursuit of gold, to this day undiscovered, in Louisiana. In these years also the great South Sea Bubble spread financial devastation in Britain.
Later there was more. In the United States in the nineteenth century there was a speculative splurge every twenty or thirty years. This was already a tradition, for the colonies, north and south, had experimented at no slight eventual cost with currency issues that had no visible backing. They did well until it was observed that there was nothing there. The Revolution was paid for with Continental notes, giving permanence to the phrase "not worth a Continental." In the years following the war of 1812–14, there was a major real estate boom; in the 1830s came wild speculation in canal and turnpike investment—internal improvements, they were termed. Along with this went issues of bank notes unbacked by anything of value and issued by anyone able to hire a building larger than that of the local blacksmith. This came powerfully to an end in 1837. In the 1850s came another boom and collapse, and in those years a New England bank, in a part of the country more cautious than most, closed down. It had $500,000 in notes outstanding and assets to cover them of $86.48.
After the Civil War came the railroad boom and a particularly painful collapse in 1873. Another boom came to an equally dramatic end in 1907, but the big New York banks were able, this time, to limit the damage. Earlier a considerable flow of British funds had fueled the American speculation, notably that just mentioned in railroads. There was also a renewed British involvement in South America, the South Sea Bubble now forgotten. The greatly distinguished Baring Brothers had to be rescued by the Bank of England from bankruptcy occasioned by its loans to Argentina. This is currently interesting, for in the 1990s Barings was caught up in the more or less incredible operations of one of its minor minions in Singapore. This time there was no rescue; Barings, for all public purposes, disappeared.
If we do now have a downturn—what is called a day of reckoning—some things can, indeed, be foreseen. By some estimates a quarter of all Americans, directly or indirectly, are in the stock market. Were there a bad slump, it would limit their expenditures, especially of durable goods, and put pressure on their very large credit card debt. The result would be a generally adverse effect on the economy. This would not be as painful as the aftereffects of 1929; then banks were fragile and without deposit insurance, farm markets were important and especially vulnerable, there was no cushioning effect from unemployment compensation, welfare payments and Social Security. All this is better now. But there could be a recession; that would be normal. 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.
Once more I do not predict and tell only what the past so vividly tells us. I offer a final word on this book. It was published in that spring of 1955 to an appreciative audience. There was a brief appearance on the best-seller lists; I looked with pleasure at the bookstore windows. On my frequent visits to New York, I was distressed, however, to see no sign of it in a small bookshop on the ramp leading down to the planes in the old La Guardia terminal. One night I stopped in to inspect the shelves. The lady in charge finally noticed me and asked what I sought. Somewhat embarrassed, I passed over the name of the author and said it was a work called The Great Crash. "Not a book you could sell in an airport," she responded firmly.