Market Declines After Galbraith's Testimony

Immediately after the testimony of John K. Galbraith, professor of Economics, to the Senate Finance and banking Committee yesterday the stock marker broke sharply and almost three billion dollars Ws lost on the market value of the stocks listed on the New York Exchange.

Though a number of brokers felt Galbraith's remarks caused the decline, Committee Chairman William J. Fulbright, Senator from Arkansas, said the drop "has no connection whatever with the study being made by this committee.

Galbraith claimed that increased stability and regulation of the stock market since 1929 have no insured it against another crash. He cited the increasing number of newcomers on the market and the growth of margin buying, reported last night by the New York Federal reserve Bank, as danger signals, which could indicate another boom and crash cycle.

If the present conditions do not change, be recommended putting all stock exchanges on a cash basis, by raising the margin from 60 to 100 percent.

Disturbing Similarity of 1929 to 1954

Relying on knowledge of the boom and bust in the twenties, accumulated for his forthcoming book "The Great crash," he warned the committee that "there are similarities between 1929 and 1954 which are certainly interesting and possibly disturbing." "What has happened before so many times can obviously happen again," he added.

Although the present boom has not reached dangerous proportions, we should not be lulled into inaction, he said, for once started, "a boom can't be stopped, only collapsed."

He told the committee that it was most important to stop the boom before it began, because inflation becomes increasingly difficult to restrain due to the losses suffered by speculators. The government must make clear its intention of stopping speculation, he told the investigators, for a boom can begin even with safeguards present, as it did in 1929.

The government has always had the means to prevent speculation, and the crash which inevitably results, Galbraith said, but has been unwilling to take the responsibility of precipitating this crash. "This is a matter of prevention, not control, for booms are not controllable, they are based on the hope of easy profit," he said. When the hope exists, there is a boom, he explained, and when it does not, there is no boom. The government cannot compromise on this matter.

If necessary, the government should institute tax regulation on stock speculations, as well as raising the margin to 100 percent, he said. "Those who react in horror to this suggestion would also deplore its alternative, another crash," he added.

He urged the government to make its opposition to stock speculation unequivocally clear. Galbraith also suggested that the New York Stock Exchange, "which stands to lose the most by a new crash," should emphasize investment for dividends rather than profits.

But, he said, "The free citizen also has a sovereign right to lose his money as he pleases, and would undoubtedly be trimmed in real estate, at the races, or in a uranium mine if the market is controlled.