The Dow Jones Industrials spent 25 years in the wilderness after the 1929 Crash. Not until 1954 did the disgraced 30-stock average regain its Sept. 3, 1929, high. And then, its penance complete, it soared. In March 1955, the U.S. Senate Banking and Currency Committee, J. William Fulbright of Arkansas, presiding, opened hearings to determine what dangers lurked in this new bull market. Was it 1929 all over again?
One of the witnesses, John Kenneth Galbraith, a 46-year-old Harvard economics professor, seemed especially well-credentialed. His new history of the event that still transfixed America, “The Great Crash, 1929” was on its way to the bookstores and to what would prove to be a commercial triumph. An alumnus of Ontario Agricultural College and the holder of a doctorate in agricultural economics from the University of California at Berkeley, Galbraith had written articles for Fortune magazine and speeches for Adlai Stevenson, the defeated 1952 Democratic presidential candidate. He was a World War II price controller and the author of “American Capitalism: The Concept of Countervailing Power.” When he stepped into a crowded elevator, strangers tried not to stare: he stood 6 feet 8 inches tall.
On the one hand, Galbraith observed, the stock market was not so speculatively charged in 1955 as it had been in 1929 On the other, he insisted, there were worrying signs of excess. Stocks were not so cheap as they had been in the slack and demoralized market of 1953 (though, at 4%, they still outyielded corporate bonds). “The relation of share prices to book value is showing some of the same tendencies as in 1929,” Galbraith went on. “And while it would be a gross exaggeration to say that there has been the same escape from reality that there was in 1929, it does seem to me that enough has happened to indicate that we haven't yet lost our capacity for speculative self-delusion.”