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Friday, October 29, 2010

John Kenneth Galbraith on “Black Tuesday”

In his 1955 best-selling book The Great Crash, 1929 economist John Kenneth Galbraith sets the stage for the week of the Crash with a hundred pages of what the Atlantic Monthly called “a trenchant and timely re-examination of the most spectacular boom and bust period in American history . . . Mr. Galbraith’s prose has a grace and wit, and he distills a good deal of sardonic fun from the whopping errors of the nation’s oracles and the wondrous antics of the financial community.”

The market survived the volatile 12,894,650 trades on October 24, “Black Thursday,” when the Exchange got word during the afternoon that various banking executives were meeting. They decided to pool resources and support the market. When Richard Whitney, vice-president of the Exchange, appeared on the floor “debonair and self-confident” and posted an order for 10,000 shares of Steel at 205, the price of the last sale, the message, Galbraith notes, was clear:
This was it. The bankers, obviously, had moved in. The effect was electric. Fear vanished and gave way to concern lest the new advance be missed. Prices boomed upward.
Friday and Saturday trading was heavy but prices held steady. Monday was a different story. While the volume of trades was less than Black Thursday, losses were worse. In the last hour three million shares were traded at rapidly falling prices.The bankers met again that afternoon but this time no Richard Whitney stepped forward. The statement they released was not reassuring:
It was no part of the banker’s purpose, the statement said, to maintain any particular level of prices, or to protect anyone’s profit. Rather the aim was to have an orderly market, one in which offers would be met by bids at some price. The bankers were only concerned that “air holes” . . . not appear. . . To the man who had stock on margin, disaster had only one face and that was falling prices. But now prices were to be allowed to fall. The speculator’s only comfort, henceforth, was that his ruin would be accomplished in an orderly and becoming manner.
The curtain rises on “Black Tuesday”:
Tuesday, October 29, was the most devastating day in the history of the New York stock market, and it may have been the most devastating day in the history of markets. It combined all of the bad features of all of the bad days before. Volume was immensely greater than on Black Thursday; the drop in prices was almost as great as on Monday. Uncertainly and alarm were as great as on either.
Selling began as soon as the market opened and in huge volume. Great blocks of stock were offered for what they would bring; in the first half hour sales were at 33,000,000-a-day rate. The air holes, which the bankers were to close, opened wide. Repeatedly, and in many issues there was a plethora of selling orders and no buyers at all. . . . By [the close] 16,410,030 sales had been recorded on the New York Stock Exchange—some certainly went unrecorded—or more than three times the number that was once considered a fabulously big day.
Most historians use this date as the beginning of the Great Depression.

Of Related Interest
  • View the full American Experience documentary The Crash of 1929 with commentary by John Kenneth Galbraith.
  • Read “In Goldman, Sachs We Trust,” an excerpt from The Great Crash, 1929, about the oversized role the investment banker played in the meltdown.
Related LOA works: John Kenneth Galbraith: The Affluent Society & Other Writings 1952-1967 (includes The Great Crash, 1929 with Galbraith's 1997 introduction "A View from the Nineties")

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