Stormy Weather

Why the Market Crashed

A Review of John Kenneth Galbraith’s Herbert Hoover: Forgotten Progressive

John Kenneth Galbraith was a widely respected economist. He attended the University of California, Berkeley receiving both an M. Sc. in 1933 and a Ph.D. in agricultural economics 1934. His education opened several opportunities, including positions in the Department of Agriculture, leading to a career as an influential writer of key institutional economic studies.


The economy will always be stuck in a fluctuating state. There are and will forever be times where the market will be prospering and times where the market will be falling. The late 1920s and the 1930s are a clear example of a market wavering into the extremes. John Kenneth Galbraith’s Herbert Hoover: Forgotten Progressive details the history of the Wall Street Crash of 1929, a change that damaged the economy for years to come—a change where a heavily controlled and moderated economy was overcome by “blind, relentless fear.”1 The story of the Great Crash begins at the end of Coolidge’s administration and continues throughout the early years of Hoover’s reign, in which signs of the inevitable downturn are evident. Galbraith examines these signs and concludes with five distinct causes that shattered the U.S. economy. The history of the most devastating stock market crash provides insight not only on prevention but also on the flaws and problems of the system.

The first signs of the crash were overshadowed by the prosperity brought by the Roaring Twenties. The flourishing market clouded the storm “brewing at home and more distantly abroad,” disguising the bad as good.2 The problems, although not many, still caused distress for some. Early signs of uneven income distribution became increasingly noted, farmers were bothered and hurt by uneven farm prices, and poverty still ruled the South. Yet, Coolidge still spoke with optimism regarding the future, praising the endless possibilities ahead; unfortunately, his prophecy of the future was false. The economy had flourished as the result of speculation and spending. Land and stock exchanged hands, increasing in profit and price as each transaction occurred. The first notable signs of market problems appeared in early 1928, with stock prices shifting in price day in and day out. Speculation of a mass exchange of stocks began to grow as common-talk. Then on March 12, a record was made—approximately 4 million stocks were exchanged. This record was quickly shattered by even higher exchanges of stock. Mellon stated that “The high tide of prosperity will continue,” in hopes that his assurance would encourage more to spend and continue the market boom.3 In some ways he was correct, as the market grew and more stocks were exchanged. The new year marked an era of a new president, Herbert Hoover. Again and again the market surged in price, yet the new administration grew weary of the ongoing process. Margin trading was a result of rampant speculation, leading to incredible amounts of loans, simply for making more and more profits Hoover had already pushed for action during Coolidge’s administration, who had in turn quickly dismissed his accusations, claiming that the market was “absolutely sound.”4 Coolidge placed the responsibility for dealing with any current or possible economic problems on the Federal Reserve Board. His lack of interaction and denial of responsibilities hindered the Federal Reserve Board’s ability to deal with the situation, but the lack of concern and plea for power from the Federal Reserve did not help either. The market was still booming and society was hell-bent on the belief that the economy would only continue and continue to prosper.

The industrial powers and their actions began the spiral that would lead to downturn. Companies had begun to merge or buy out smaller companies, forming large corporations. They built up and possessed large amounts of holding companies. In turn, these companies, including Woolworth, American Stores, Associated Gas and Electric, and others all sold stock to the public. Demand for their stock was high and the limited amounts of stocks skyrocketed the price. This led to speculation and investment in stocks of those hoping to make a quick profit. Investment banks opened throughout the nation, loaning millions of dollars to those willing to pay for the overpriced stocks. Investment trust groups formed throughout the nation, offering more chances to profit. In turn, the overwhelming demand was then exploited by groups including Goldman & Sachs, an investment banking and brokerage partnership. Goldman Sachs bought a million shares from Trading Corporation. After establishing control in the Trading Corporation, Goldman Sachs merged with the Financial and Industrial Securities Corporation. Their merger increased the overall value of the company. Then, to further supplement their own stock, Goldman Sachs bought approximately 600,000 shares of its own stocks to boost its value. Goldman Sachs would continue this process several times, buying out companies Pacific American Associates and others, makings millions in profit by selling overpriced and over-hyped stocks. The Goldman Sachs group was one example of the many exploitations occurring a pivotal year. The New York Stock Exchange remained heavily active throughout 1929. The summer was marked with intense traffic of change with a shift of over 4 and 5 million daily, leading to excessively high amounts of loans. The belief that stood out remained that “if stocks remained high and went higher...then there was no occasion to worry about the loans piling up.”5 This thought process was key in the eventual downfall of millions as bankers continued to encourage buying stocks. The result was that stocks became the center of life; they “not only dominated the news...[they] also dominated the culture.”6 Money was the center of everything, and the stock market provided an opportunity to achieve wealth. Many were willing and open to take a risk without any knowledge of the market; this would lead them awry. The causes for the downfall were in full effect; the only thing needed was a spark to set off it all.

The autumn of 1929 was when the depression actually begun. The market had finally peaked with steel production and home building declining slowly but sharply. Wall Street knew what was happening, it needed to prevent the danger of a drop in stock price, their “income and employment.”7 Thus, businessmen and Wall Street citizens stressed the need for continued spending and production. The crash was not a sudden drop. The market could not suddenly be aware of a depression; instead, frightened speculators carefully watched the production index drop. Organized groups containing leaders of business attempted to keep “prices of stock at a reasonable level.”8 Uneasiness, doubt, and pessimism crowded the minds of those making a decision on whether to sell or not to sell. Monday, October 21 marked the first major day of decline; this was the day where many soon found out or realized that the declining values of stock would ruin their lives forever. There was still some marginal gain, keeping prices from an all-time low. This pattern continued until Thursday, October 24—the infamous Black Thursday. 12,894,650 shares were exchanged during the day, causing mass panic and disorder. The market remained stable for a few hours that day until the prices were updated, starting with a sharp decline. Brokers rushed to sell their stocks hoping to come out with some profit. The panic of the Wall Street crash was in full effect. In turn, bankers decided to meet in hopes of stimulating the economy and supporting it by buying large amounts of stock, causing a slight increase in prices. They had stopped the crash momentarily, but how effective and long-term their efforts would soon be revealed. Morale was boosted from these actions and many believed that the economy had been saved from crashing. Speculation arose that the market would recover and many prepared for a recovery. However, the real disaster had yet to begun.

The problems continued to worsen; the next days continued to see stock market prices drops and decline. There was no recovery this time, as a record breaking 16,410,030 sales occurred on Black Tuesday. The market was in total ruin, with employees dazed and fatigued from the horrors of the preceding days. Bankers continued to meet in hopes to organize a successful recovery plan, but it failed. A call to close the market for several days was made in hopes to reinstate “courage and hope,” but the market held out in recovering in the slightest manner due to companies declaring an extra dividend.9 Time passed, and more and more realized that the problem of the market lay within the investment trusts. Many struggled to pay off loans, and many more attempted to sell their remaining stocks at low prices in hopes to salvage anything. The aftermath of the crash led to rampant speculation about what exactly happened. Auditors discovered employees hired to embezzle and play the market, a common occurrence in the preceding years. The stock market continued to waver with its ups and downs, while investment trusts continued to drop as valueless stock. Even with all the continuing drops, many economists still continued to predict that the crash would be short-lived and its after-effects would be no greater than the drop in the early 1920s. The resulting years proved entire opposite of what was predicted, as the Great Crash caused suffering for many over the next 10 years. Although speculation, loans, and accessibility had been credited as the source of the problem, they only fueled the belief of “that ordinary people were meant to be rich.”10 The five major weaknesses of the time are defined as a bad distribution of income, bad corporate structure, bad banking structure, a dubious of the foreign balance, and a poor state of economic intelligence. Hand in hand, the weaknesses of the system along with rampart speculation and steadfast belief enabled the crash’s occurrence. The most devastating economic crash resulted from a build-up of a failed system.

A disastrous event like the Wall Street Crash of 1929 does not happen overnight. Galbraith’s Herbert Hoover: Forgotten Progressive details the problems and failures of the time which slowly allowed an outbreak to occur that harmed millions. Galbraith examines and explains how and why the Great Crash occurred. He does this to provide knowledge to prevent future instances of stock market failure as he has observed “this phenomenon has manifested itself many times.”11 Galbraith believes that the problems resulted from government inability to intervene with the problems that plagued society. The reasons why the stock market crashed is its desperate needed for intervention and moderation, where the government lacked or refused to change their policies. This lack of intervention relays the fault onto the government, which was his purpose in writing this book. He hoped to educate the public and forewarn them of signs of forthcoming crash and how to stop it. The influence of outside knowledge has not affected Galbraith’s writing. Galbraith was an economist determined to clear and distinguish the reasons of the crash as well as refresh the importance to the public of such a historic event. The stock market still had yet to fully recover, thus by reminding them of a previous event he hoped to warn against a possible future crash by providing an accurate depiction of the events of the crash.

In Stephen Foley’s review, History lessons: Galbraith’s ‘Herbert Hoover: Forgotten Progressive’ is still essential reading today, Foley draws a parallel to the importance of today’s world. He sums up the five distinct causes of the crash as relevant and applies them to current-day events. His emphasis on the relevance in today’s society, stating that “Galbraith’s book is still essential reading” along with his praise of its longevity is evident of a timeless piece.12 Fifty years later, Galbraith’s work is still used to clear up and understand today’s problems. Another review by Thom Hartmann relays a similar message. Hartman writes that to “really understand what brought about the crash,” one must read Galbraith’s work.13 He compares the Coolidge and Hoover administrations to the current Bush, Clinton, and Bush years in how the economy has been dealt with and the fact that “history will again repeat itself.”13 The problems of the past have already been dealt with and lessons have been learned yet even with the knowledge to prevent the problem, it has still returned. Both authors emphasize the importance of Galbraith’s well-written and essential work of art. Galbraith’s work clearly defines the problems of the time. Using humorous accounts of certain speculators, Galbraith delves into the reasoning behind the decision while providing a background on the events. He broadly details on certain individuals and their role in defining a historic event, enough to give insight on which particular persons influenced the crash. However, due to the knowledge of the period during the 1950s, some of his information regarding certain individuals are falsely credited or misinformed. Although with these minor errors, his clear-cut writing style effectively communicates the history of an event. He achieves his goal in effectively spreading the knowledge of the event’s causes and effects.

The Wall Street Crash of 1929 marked an important chain of events that led to watershed period in American history. The 1930s defined the problems of the economy. If the economy was “fundamentally sound,” the crash could have been avoided or its impact could have been small.14 Instead, the lack of control and wide speculation in turn caused suffering for millions of people. The government’s inability to enact on and fix the problems also fueled the devastating impact. The suffering felt by millions led to cries for reform, especially for the Federal Reserve Board. The reforms would test the ability of America as whole to create an effective way to ensure the crash could never happen again and the economy would be stable for years to come. No longer would there by widespread risk takers hoping to make a quick profit, instead the people would be wiser in spending their money. Grievances and adversity had taken their toll on Americans, sparking a change of a need of a stronger government, starting with the head. The fallout of the event, the 1930s, changed America forever as a whole. The mindset from the 1920s was gone and instead a more careful and insightful one replaced it.

The impact of this era is in its relevance to today’s current situation. Economic problems have again been centered as a national issue. Within recent years, “the top percent have made up 38 percent of all income,” and a similar bank problem is occurring with mortgages and foreclosures.12 The parallels and similarities between two periods are outstanding, indicating that even with reform, policies regarding the stock market have yet to change. The problems of a previous society are repeating themselves with the possibility of a similar conclusion. Processes of preventing further crashes have failed and have been ignored allowing a dangerous time of uncertainty cloud the mines of society. The impact felt by the force of a crash is repeated once again.

The 1930s marked a year of depression and poverty. The source of these problems was a series of errors and mistakes detailed upon in John Kenneth Galbraith’s Herbert Hoover: Forgotten Progressive. By examining the problems that led to a disastrous result, Galbraith composes a piece providing enough insightful commentary along with the history of the time to create an important piece of writing relevant to this day. He expresses the dangers of the market and notes that the need for now will always outweigh the future as a “threat to capitalism” brought upon by itself.15 Only through education and awareness can this threat be stopped altogether.



1: Galbraith, John Kenneth. Herbert Hoover: Forgotten Progressive. New York, New York, 2009. 192
2: Galbraith, John Kenneth. 1.
3: Galbraith, John Kenneth. 15.
4: Galbraith, John Kenneth. 26.
5: Galbraith, John Kenneth. 54.
6: Galbraith, John Kenneth. 72.
7: Galbraith, John Kenneth. 96.
8: Galbraith, John Kenneth. 99.
9: Galbraith, John Kenneth. 115.
10: Galbraith, John Kenneth. 169.
11: Galbraith, John Kenneth. xvi.
12: Foley, Stephen. “History lessons: Galbraith’s ‘Herbert Hoover: Forgotten Progressive’ is still essential reading today.” The Independent. N.p., 10 Oct 2008. Web. 1 Jun 2010. <>.
13: Hartmann, Thom. “The Great Crash of 1929.” Buzzflash. 14 Jan 2010. Web. 1 Jun 2010. <>.
14: Galbraith, John Kenneth. 187.
15: Galbraith, John Kenneth. 153.

Student Bio

Eric Justin Chen currently attends Irvine High. Born and raised in Irvine, California, he is involved in several school functions, including sports, student government and club. He aspires to eventually pursue a career in practicing law or directing films.


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