Markets Paz, Octavio
The Great Depression, 1929-1939.
". . .The highest record of years of prosperity."
" . . . Anticipate the future with optimism."
Calvin Coolidge, December 4, 1928. TGC 1929, p.1.
Andean marketplace: Cuzco, Peru. 1989, JVS
The Great Crash 1929. John Kenneth Galbraith, 1962-1995.
"The market crash eliminated this source of revenue (merchandising stock to the public) and made him dependent on the wholly inadequate earnings of his enterprises."
"The market had reasserted itself as an impersonal force beyond the power of any person to control, and, while this is the way markets are supposed to be, it was horrible."
The Essential Galbraith, 2001, pp. 303, 295.
The bad distribution of income | The bad banking structure | The bad corporate structure
"To regard the people of any time as particularly obtuse seems vaguely improper, yet it seems certain that those who offered economic counsel in the late Twenties and early Thirties were almost uniquely perverse."
Galbraith, The Great Crash 1929.
"That we are are having a major speculative splurge as this is written is obvious to anyone not captured by vacuous optimism. There is now more money flowing onto the stock markets than there is intelligence to guide it."
"The descent is always more sudden than the increase; a balloon that has been punctured does not deflate in an orderly way."
p. xii.
These are seven means of losing one's money:
- buy something nobody else wants.
- purchase land you have never seen.
- invest in something you do not understand.
- buy a product you can't fix.
- buy a service whose unintended consequence harms your health.
- buy something whose maintenance and upkeep you cannot afford.
- gamble in any form.
The goal here, or my intent:
1) To describe how markets in natural goods and service, such as water, timber, game, crops and fisheries differs substantially from makets in produce, durable goods, or investment securities.
The role of labor, land & energy demand in natural assets.
2) For you to see the context of accounting for environmental assets & ecological systems' services.
3) Promoting rational debate, engaged discussion, reasoned discourse, polite argumentation, and rigorous analysis of what a the often used but elusive word "market" actually means.
By market, we mean how people promise and how buyers learn.
Market derives from the Latin root, mercatus, mercari : meaning to buy, purchase, or acquire through trade.
As a noun markets refer to the places where exchanges of produce, goods, services, or assets of some kind occurs.
As a verb market means to offer for sale, or advertise, make available, or provide for the purchase of a tangible product or intangible thing such as a commodity, or a security, or a loan, or insurance.
Also to promote or perpetuate sales.
Some historical examples of instability:
Presentation: some causes of the collapse.
The bad distribution of income | The bad banking structure | The bad corporate structure
The bad distribution of income
The most extreme point for income inequality in the
US in the 20th century was 1928, thanks to a financial boom that had handed great wealth to the rich with the funds to play the stock market. Worryingly, we were back at just such an extreme in 2006.
In 1928, the richest 5 per cent of the population took in more than a third of all personal income. They averaged less than a quarter for most of the post-war period, but inequality began to rise sharply from the Eighties. In the past two or three years, the top 5 per cent have again made up to 38 per cent of all personal income, according to US data compiled by Emmanuel Saez, economist at the University of California.
Galbraith argued that an economy that relies on the spending of so few people is less stable, more prone to big swings, than one made up of a broader range of people of more modest means. The rich use their money on consumer luxuries or business investment, which can dry up if they lose a lot of money. The 1929 crash hit the rich hardest; the question today is whether they have shared the same amount of the financial pain from the credit crisis, the plunging stock market and the convulsions in the hedge fund industry.
The bad corporate structure
Galbraith calls it "devastation by reverse leverage". He describes a corporate pyramid, with vast holding companies controlling large segments of the utility, railroad and entertainment business. Because dividends from subsidiaries were passed up to corporate holding companies, which relied on them to pay the interest on giant debts, an interruption in those dividends would threaten bankruptcy. To avoid that, holding company executives demanded a lock-down on investment throughout the whole structure, exacerbating the depression.
Today, public companies outside the financial sector have generally been less highly leveraged and have enjoyed a long period of strong cash generation, and conglomerates have been out of stock market fashion for a generation. The same cannot be said of the private sector, newly swollen by the private equity boom and a slew of multi-billion dollar buy-outs. The question will be, if there is an economic downturn, how will private equity owners respond to the demands of bondholders in their highly leveraged companies, and whether they have the wherewithal to keep their companies' investment taps on.
The bad banking structure
"Since the early Thirties, a generation of Americans has been told, sometimes with amusement, sometimes with indignation, often with outrage, of the banking practices of the late Twenties," Galbraith notes, but surprisingly he absolves most bankers of blame. Many lending practices only looked profligate or foolish when the unprecedented severity of the depression became clear. Rather, the economist blames panicking depositors, who saw the life savings of their neighbours wiped out when one bank collapsed and didn't wait around to see the same thing happen to them. In the first six months of 1929, 346 US banks collapsed, and that was just the beginning of a series of bank runs.
It was precisely this that led to the creation of a federal deposit insurance scheme in 1933, guaranteeing most people's savings – a scheme which has so far prevented further banking runs in the US and even managed to oversee the biggest-ever US banking collapse (of Washington Mutual, last month, whose customers were turned over to JP Morgan Chase) without anyone feeling their money was in danger.
J. K. Galbraith. The Great Crash, 1955
The Great Crash examines the 'gold-rush' or 'get rich quick fantasy' in American psychology and describes its dire consequences.
The post war instability of European reparations, Florida land boom, the operations of Insull, Kreuger and Hatry, and the Shandoah Corporation all come together in Galbraith's study of concerted human optimism, penchant for incantations, greed, and folly.
The bad distribution of income | The bad banking structure | The bad corporate structure
Galbraith's legacy:
I suppose that I would, in economics, most like to be remembered for bringing emphasis to an economic structure in which the characteristic organization is the great corporation rather than the competitive enterprise and of seeing economic life as a bipolar phenomenon, by which I mean, seeing it as a structure, on the one hand, of a few hundred great corporations, and seeing it, on the other hand, as the residual structure of agriculture, small business, the services. And arguing that the controlling economic behavior in the two parts is by no means the same. It has to be examined separately. I would hope that there might be some minor effect from that.
The bad distribution of income | The bad banking structure | The bad corporate structure
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