Franke: Book Review
The Great Crash of 1929
by Mark Franke
One of the most fascinating books I read in high school was “The Great Crash: 1929” by John Kenneth Galbraith. I believed what most everyone else did, that the Great Depression was caused by the stock market crash. Galbraith disabused me of such a simplistic explanation.
Journalist Andrew Ross Sorkin’s new book, “1929: Inside the Greatest Crash in Wall Street History — And How It Shattered a Nation” (Viking 2025, 444 pages plus notes, $21 hardcover at Amazon) retells the story as a journalist might rather than as an economist such as Galbraith would. And therein lies a problem to my way of thinking.
I will concede up front that it is unfair to judge a book by what the reader wanted rather than by what the author wrote. Sorkin does tell an intriguing story as he builds up to Black Thursday. We are introduced to a long list of key and marginal players, especially the National City Bank chairman, Charles Mitchell, who serves as the anti-hero of the book.
Sorkin’s assessment of the key bankers and industrialists tends to be negative but not completely censorious. He recognizes the public demand for scapegoats for the market clash so why not rich bankers, especially the short sellers? Of course the Senate piled on as politicians are wont to do, then and now. Just think of 2008.
Sorkin is not a fan of conservative icon Calvin Coolidge. He sees him as a grumpy, do-nothing president. He also is negative about Herbert Hoover but rehabilitates his record in the book’s conclusion. One might think that he would see Franklin Roosevelt as an exemplary president but the glimpses into FDR’s personality are far from flattering. Sorkin’s conclusion is that he is overrated by historians.
It was fascinating to follow Sorkin’s account of William Raskob’s ascent to the chairmanship of the Democrat Party after its electoral loss to Herbert Hoover in 1928. His strategy was to plant negative stories about Hoover with newspapers as attacks on his competence and character. Discrediting Hoover through personal attacks was the Democrats political plan leading up to the 1932 election. Sound familiar?
To be fair to Sorkin, he is a journalist and writes like one in its positive sense. He generally reports fairly on all the characters and brings them to life as human beings, flawed in many ways but with a true desire to prevent the crash and its aftermath. While some criticized the New York bankers for making positive statements when the market was crashing, Sorkin explains that they were trying to prevent a total bear stampede that would impoverish everyone. They can be faulted for not knowing what to do but not for purely self-serving market moves.
The psychology of the market is carefully reconstructed through the people who were part of it, bankers and politicians and wealthy industrialists. What I found interesting is Sorkin’s recounting of the popular response to skyrocketing stock prices. Everyone wanted in despite a poor understanding of the inherent risk of any investment. Alan Greenspan would have been right at home warning about irrational exuberance. One amusing anecdote is from Joseph Kennedy, a heavy investor. He decided it was time to sell out when his bootblack started giving him stock advice.
The major problem for the public was bank failures. Undercapitalized banks, and there were a lot of these outside New York City, could not withstand the level of depositor demands for withdrawals. Banking is now and was then a fractional reserve system in which only a small fraction of customer deposits is maintained as cash by banks while the rest is loaned out. Think of the scene from “It’s a Wonderful Life” where Jimmy Stewart is using his honeymoon money to satisfy the run on his small savings bank.
The response was creation of the Federal Deposit Insurance Corporation to protect the small depositors, probably as much a political response as an economic one. The other reform was the Glass-Steagall Act which separated commercial banking from investment banking as a means of protecting the commercial side of banks from the risks incurred by their investment side. These are the only two significant responses to the crash that Sorkin acknowledged.
The role of the banking system in the American economy has been contentious from day one when Hamilton and Jefferson went head-to-head over a national bank. Sorkin does not address any of the macroeconomic issues, but this wasn’t the purpose of his book. He proposed to tell the story of the people involved in and affected by the Great Crash. In that he did an excellent job. If he doesn’t encourage sympathy for all of them, he at least evokes empathy.
At the end of the book, he finally asks if the Great Crash could have been avoided. His answer is brief. He thinks there were market interventions that could have tamped down excessive speculation but that it would have taken “almost divine prescience” to look beyond short-term incentives to see long-term consequences.
In terms of policy advice, he offers only this: “The antidote to irrational exuberance is not regulation by itself, but humility.” Unfortunately there is precious little of that to be found in Washington D.C. politicians or New York City bankers.
Mark Franke, M.B.A., an adjunct scholar of the Indiana Policy Review and its book reviewer, is formerly an associate vice-chancellor at Indiana University-Purdue University Fort Wayne.
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