Rainbow’s End: The Crash of 1929

Published by EH.NET (February 2002)

Maury Klein, Rainbow’s End: The Crash of 1929. New York: Oxford

University Press, 2001. xx + 345 pp. $27.50 (cloth), ISBN: 0-19-513516-4.

Reviewed for EH.Net by Robert Zevin, Robert Brooke Zevin Associates,

Newburyport, MA.

In this, his twelfth book, Maury Klein, a professor of history at the

University of Rhode Island, has a lot to tell his readers about the 1920’s, the

Great Crash and its immediate aftermath. However the purpose and meaning of all

his tales is problematic. His narratives are cut and switched to a new topic

every one to four pages. Sometimes a truncated narrative is resumed later.

Sometimes not. One individual is usually the focus of each segment. These range

from Herbert Hoover and Benjamin Strong to Groucho Marx and an individual

victim of Wall Street rapaciousness whose story appears in the congressional

investigations after the Crash. Klein tells his readers about the illnesses and

disasters that afflict these people, about their feelings and about their

financial gains and losses.

However, if there is a moral to these tales or an insight into the booming

1920’s and the Great Crash, it is not explicit. Stories, facts and occasional

quantities are poured out in an undifferentiated continuum. Klein hardly pauses

to provide reasons, consequences or delineations.

After looking diligently, it may be that the clustering of tales in the first

half of Rainbow’s End is intended to suggest that the euphoria of the

1920’s was not merely associated with the economy, new technologies, new

products and the stock market. Klein suggests that euphoria was endemic to

sports, religious revivalism and every other aspect of culture and society.

(Poor farmers, the unemployed and people of color basically don’t appear in

this book.) However, if this is intended to be his opening theme, Klein remains

mute on why this transformation happened when it did or indeed why it happened

at all.

Several additional themes can be attributed to the second half of the book.

First is the familiar tale of a deadlocked Federal Reserve failing to act in

any helpful way. Klein returns to this story repeatedly, using contemporary

newspaper accounts and secondary sources as he does throughout the book.

Although Milton Friedman and Anna Jacobson Schwartz (A Monetary History of

the United States, 1867-1960, Princeton University Press, 1963) appear in

the bibliography, their masterful description of this deadlock is never

referenced by Klein. The reasons for the deadlock and the viability of various

possible actions are never discussed.

A second implicit theme can be deduced from Klein’s frequent recitations of the

magnitude of outstanding broker loans and the interest rate on overnight call

loans. The increases in these two measures are precisely the thing that Klein

implies the Federal Reserve might have done something about. And along with the

increase in the volume of stock market transactions, they also could be

indicators of a less widely familiar and accepted argument that the stock

market required increasing transactions balances and broker’s loans to the

detriment of other uses for money and credit.

Yet another recurrent theme in the tales Klein chooses to tell is the idea the

bull market was characterized from beginning to end by the systemic virtual

theft of money from the investing public by brokers, insiders, pool operators

and various people at the top. Each individual story is apparently true. It is

also true, as John Kenneth Galbraith (The Great Crash, 1929, Boston,

Houghton Mifflin, 1955) has observed, that the chicanery that lives under the

rocks of financial markets is typically exposed in the aftermath of the crash.

Of course, since none of these themes is explicitly stated, none is

convincingly established. More generally economic reasoning and quantitative

data about the economy and the stock market are astonishingly scarce and often

flawed. Only two places in the entire book present stock market data in tabular

form. A pair of tables (pp 96-97) purports to show data for the Dow Jones

Industrial and Rail Averages for 1920 through 1926. However most of the time

what are described as the high and low for these averages in one year fall

completely above or below the range for the same numbers in adjoining years.

And what are labeled the high and low values for these indices in January and

December also typically exceed the stated range for the year in both

directions. The other table (p. 183) attempts to illustrate the increasing

volatility of the market from 1920 through 1929. It shows volume — in shares

for the year although none of this is explicitly stated — and what is called

“Average Swing,” which, although again not explained, corresponds for the

earlier years to the difference between the mysteriously calculated high and

low prices of the earlier tables. Klein does not provide a clue whether the

increase in this number is due to increased price levels or truly increased

volatility.

Nowhere is there a graph of stock price levels and trading volume over time.

Many pages in the closing chapters are consumed with a tedious account of the

market’s vicissitudes in 1928 and 1929, often on a day-by-day basis. Few

readers would be able to construct an overview of the market’s behavior from

this prosaic recital, which is occasionally enlivened with such meaningless

observations as “Once again, however, a small cluster of 10 to 15 stocks led

the charge” (p. 195).

Klein’s narrative style and focus on individuals might suggest using this book

as a supplement in an undergraduate course. In my view students would be better

entertained, better educated and better insulated from numerous errors by

reading abundant alternatives such as Galbraith’s The Great Crash.

Robert Zevin is president of Robert Brooke Zevin Associates, Investment

Advisors, Newburyport, MA and author of various articles in economic history

including “The Economics of Normalcy,” Journal of Economic History, Vol.

42, no. 1 (March 1982).