Margin trading and brokers’ loans provided leverage. Wealth was created not from conventional physical investment, but by the transformation of worthless swampland into potential building blocks, with values based not on usage, but on expectations of future higher values.Īround 1925 the Florida land-boom expired, but new speculative opportunities opened up as equity prices began the ascent that peaked in 1929. Once the boom got underway, it was hard to distinguish substance from the ephemeral.

In a rising market, profits could be realised before the full payment fell due, encouraging further purchases. Developers sold blocks on 10 per cent deposit. For Florida, air-conditioning and improved transport revealed its climate advantage.įlorida illustrated a further key component of the boom: financial leverage. Booms need “the indispensable element of substance”. In Galbraith’s telling, Florida real estate in the mid-1920s provided a foretaste of the stock-market boom that would follow later in the decade.

What similarities would he find in today’s financial markets? Galbraith observed that, unlike military historians, the economic historian is expected to use past experience to foretell the future. Galbraith’s entertaining 1954 account of the stock-market collapse of 1929 The Great Crash (re-released by Penguin in paperback last year), the celebrated economist took delight in recording the madness of crowds, responding to the lure of easy wealth.

Galbraith the great crash