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A Short History of Financial Euphoria
The world-renowned economist offers "dourly irreverent analyses of financial debacle from the tulip craze of the seventeenth century to the recent plague of junk bonds."—The Atlantic.
128 pages, Kindle Edition
First published January 1, 1990
About the author
John Kenneth Galbraith
219 books523 followersJohn Kenneth Galbraith was a Canadian-American economist. He was a Keynesian and an institutionalist, a leading proponent of 20th-century American liberalism and democratic socialism. His books on economic topics were bestsellers in the 1950s and 1960s. A prolific author, he produced four dozen books & over a 1000 articles on many subjects. Among his most famous works was his economics trilogy: American Capitalism (1952), The Affluent Society (1958) & The New Industrial State (1967). He taught at Harvard University for many years. He was active in politics, serving in the administrations of Franklin Roosevelt, Harry Truman, John Kennedy, and Lyndon Johnson. He served as US Ambassador to India under John F. Kennedy.
He received the Presidential Medal of Freedom twice: one in 1946 from President Truman, and another in 2000 from President Clinton. He was also awarded the Order of Canada in 1997, and in 2001, the Padma Vibhushan, India's second highest civilian award, for strengthening ties between India and the USA.
He received the Presidential Medal of Freedom twice: one in 1946 from President Truman, and another in 2000 from President Clinton. He was also awarded the Order of Canada in 1997, and in 2001, the Padma Vibhushan, India's second highest civilian award, for strengthening ties between India and the USA.
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Displaying 1 - 30 of 231 reviews
August 2, 2018
This is the second book I've read in a short time about financial manias, and it's an important one. The book was written in the early 90s at a time when the junk bond bubble had collapsed.
The book is short, simple, and intelligent. It also comes from a sensible left-of-center perspective that I feel is both wise and sadly lacking into today's landscape. I don't know everything about Mr. Galbraith's financial view, but he seems Neo-Keynesian.
The central arguments of the book are these:
1) The common (and especially American) tendency to associate intelligence with great wealth is often specious -- great wealth (but not moderate wealth) is probably more closely associated with luck and cheating. (See authors such as Nassim Nicholas Taleb for more on this subject).
2) The financial memory is short...typically financial catastrophes and their causes are forgotten in about 20 years, if not sooner.
3) There are no such things as really new financial innovations. When a financial innovation is new it usually means that a hype machine is forming and that a bubble is inflating.
4) Financial hype is addictive and can even absorb smart people.
I probably liked this book better than "The Ascent of Money" because of the coherence of its themes and how relevant they are for today. At about 100 pages, it is a book that even high schoolers could read and benefit from.
The references to Mr. Donald Trump will also seem prescient -- in 1990, Mr. Galbraith was writing about Trump as a failed businessman backed by bankers who should have known better; 20 years later, he is now a politician run amok backed by voters who should have know better.
Mr. Galbraith was right to predict that 20 years was all it took to forget...
If we're looking for the source of the next financial catastrophe, then look no further than -- the public endorsement of bullshit artists, partisanship, a growing national debt, frivolous tax cuts, frivolous tariffs, fiscal easing without end, and an abandonment of science.
I would also add an abandonment of the idea of safety nets, both the political left version that includes government support for the vulnerable and the political right version that involves a deep caring for the people in our community. I'm not sure Mr. Galbraith would agree with me here, but I think he would.
Mr. Galbraith, where is your simple, coherent wisdom when we need it most?
The book is short, simple, and intelligent. It also comes from a sensible left-of-center perspective that I feel is both wise and sadly lacking into today's landscape. I don't know everything about Mr. Galbraith's financial view, but he seems Neo-Keynesian.
The central arguments of the book are these:
1) The common (and especially American) tendency to associate intelligence with great wealth is often specious -- great wealth (but not moderate wealth) is probably more closely associated with luck and cheating. (See authors such as Nassim Nicholas Taleb for more on this subject).
2) The financial memory is short...typically financial catastrophes and their causes are forgotten in about 20 years, if not sooner.
3) There are no such things as really new financial innovations. When a financial innovation is new it usually means that a hype machine is forming and that a bubble is inflating.
4) Financial hype is addictive and can even absorb smart people.
I probably liked this book better than "The Ascent of Money" because of the coherence of its themes and how relevant they are for today. At about 100 pages, it is a book that even high schoolers could read and benefit from.
The references to Mr. Donald Trump will also seem prescient -- in 1990, Mr. Galbraith was writing about Trump as a failed businessman backed by bankers who should have known better; 20 years later, he is now a politician run amok backed by voters who should have know better.
Mr. Galbraith was right to predict that 20 years was all it took to forget...
If we're looking for the source of the next financial catastrophe, then look no further than -- the public endorsement of bullshit artists, partisanship, a growing national debt, frivolous tax cuts, frivolous tariffs, fiscal easing without end, and an abandonment of science.
I would also add an abandonment of the idea of safety nets, both the political left version that includes government support for the vulnerable and the political right version that involves a deep caring for the people in our community. I'm not sure Mr. Galbraith would agree with me here, but I think he would.
Mr. Galbraith, where is your simple, coherent wisdom when we need it most?
April 10, 2024
I've always enjoyed Galbraith, with the exception of his mediocre fiction and account of his work for our State Department in 'Ambassador's Journal'. Indeed, during Dave Schweickart's course on Socialism and Capitalism at Loyola University, when the class was divided between those interested in Marx, or in Milton Friedman, or in Galbraith, I chose Galbraith, partly because he was enjoyable, partly because I figured most students would select Marx owing to our teacher's socialist proclivities. This got me to read his trilogy as well as a number of ancillary works.
Most economists, even Adam Smith and Karl Marx, aren't fun. It's called 'the dismal science' for a reason. Other than Galbraith, the only ones I can think of who are entertaining are Heilbroner and Thorstein Veblen (at least his 'Theory of the Leisure Class'). Marx, while important, even essential, is rather dry, Engels being better in English. Galbraith, however, has a witty perspective on the human condition, this wit well demonstrated in this slight volume detailing some of the more world-historical panics from the tulip craze in Holland through the Wall Street crash of 1987.
Though dated, the cycles of euphoria and disappointment described are all of a kind according to Galbraith, virtually a part of the human condition, at least under market capitalism, the tendency being of the character of original sin.
Most economists, even Adam Smith and Karl Marx, aren't fun. It's called 'the dismal science' for a reason. Other than Galbraith, the only ones I can think of who are entertaining are Heilbroner and Thorstein Veblen (at least his 'Theory of the Leisure Class'). Marx, while important, even essential, is rather dry, Engels being better in English. Galbraith, however, has a witty perspective on the human condition, this wit well demonstrated in this slight volume detailing some of the more world-historical panics from the tulip craze in Holland through the Wall Street crash of 1987.
Though dated, the cycles of euphoria and disappointment described are all of a kind according to Galbraith, virtually a part of the human condition, at least under market capitalism, the tendency being of the character of original sin.
January 11, 2022
so you're saying i /shouldn't/ convert all my savings to ethereum?
August 31, 2021
"The financial memory should be assumed to last no more than 20 years"
"Financial genius is before the fall"
"Financial genius is before the fall"
November 29, 2020
Reading massive tomes at the moment so this book came as a welcome change. It's a fast recap of major economic crises over the past 500 years. Galbraith argues there are three commonalities behind all these events -- leverage, mass delusion, and scapegoating. The first two represent the exuberant upsurge; the latter, the panicked unraveling.
Wouldn't be the book to go if you're looking to understand the anatomy of each crisis. There are longer and meatier books out there for that.
Wouldn't be the book to go if you're looking to understand the anatomy of each crisis. There are longer and meatier books out there for that.
April 11, 2025
Kitabın en en en net mesajı: Hayır, tüm varlıklarınla tabii ki bitcoin almamalısın 😊
Detayı ise:
Finansal piyasaların belli dönemlerle şişmesi ve patlaması döngüsü konu ediliyor. Farklı tarihlerde farklı coğrafyalarda yaşanan finansal çöküşlerin hem tarihçesi hem de nedenleri sunuluyor. Bunların en meşhuru elbette Hollanda’daki lale çılgınlığı ile 1929 ABD büyük buhranı.
Yazara göre finansal çöküşlerin nedenleri birkaç ana başlık altında toplanabilir. Her biri, hem ekonomik davranışların hem de insan psikolojisinin nasıl devreye girdiğini gösteriyor:
1. Aşırı Kaldıraç (Leverage) ve Borçlanma
* Finansal inovasyonlar, varlıkların üzerinde aşırı borç yaratılmasına dayanır.
* Bankalar ellerindeki gerçek para (hard money) miktarından fazla kredi verdiklerinde görünürde bir sınır yokmuş gibi görünse de, bu durum sürdürülemez.
* Krizler, bu borçların artık gerçek ödeme kapasitesiyle orantısız hale geldiği noktada baş gösterir.
“Tüm krizler... ödeme araçlarının altında yatan kapasiteyle tehlikeli biçimde orantısız hale gelmiş borçlarla ilgili olmuştur.”
2. Aşırı İyimserlik ve Spekülasyon
* Piyasalarda fiyatlar iyimserlik üzerine iyimserlikle şişirilir.
* İnsanlar, yükselen fiyatları rasyonel değil duygusal olarak besler.
* Bu ruh hali yaygınlaştığında ve “benzersiz fırsatlar” dillendirildiğinde, gerçekçilik yerini hayale bırakır.
“İyimserlik üzerine iyimserlik inşa edilerek fiyatlar yukarı çekildi.”
“Bir yatırım fırsatı etrafında heyecan varsa... bu, temkinli olma zamanıdır.”
3. Kendi Başarısını Abartma Eğilimi (Overconfidence)
* İnsanlar, özellikle zenginleştiğinde, başarısını kendi zekâsına atfeder.
* Bu da onları hatalara ve kör noktalara açık hale getirir.
“Herhangi bir bireyin zenginleştiğinde bu başarıyı kendi üstün zekâsına atfetmesindeki kolaylıktır.”
4. Kitle Psikolojisi ve İnkar Mekanizması
* Kriz anında insanlar suçu kendilerinde aramak istemez.
* Suç, geçmişteki spekülatörlere ya da olağan dışı olaylara atfedilir.
* Kimse sistemik sorunları veya kendi rolünü sorgulamaz.
“Dahil olanlar, aptallığı kendilerine yakıştıramazlar.”
“En önemsiz sorular ise en çok vurgulananlardır...”
5. Piyasaların İdealleştirilmesi ve Siyasi Körlük
* Piyasalar “kutsal” gibi algılanır, sorgulanmaz.
* Politik inançlar ekonomik beklentileri şekillendirir. Özellikle egemen siyasi görüşle zenginleşme arasında bağ kurulması, taraflı iyimserliği doğurur.
6. Yetersiz Şüphecilik
* Gerçek çözüm, piyasa coşkusuna karşı sürekli bir şüphecilik geliştirmektir.
* Aksi halde, insanlar tekrar tekrar aynı hatalara düşer.
“Bariz iyimserliğin muhtemel aptallıkla kararlılıkla ilişkilendirilmesini içeren gelişmiş bir şüphecilik…”
Detayı ise:
Finansal piyasaların belli dönemlerle şişmesi ve patlaması döngüsü konu ediliyor. Farklı tarihlerde farklı coğrafyalarda yaşanan finansal çöküşlerin hem tarihçesi hem de nedenleri sunuluyor. Bunların en meşhuru elbette Hollanda’daki lale çılgınlığı ile 1929 ABD büyük buhranı.
Yazara göre finansal çöküşlerin nedenleri birkaç ana başlık altında toplanabilir. Her biri, hem ekonomik davranışların hem de insan psikolojisinin nasıl devreye girdiğini gösteriyor:
1. Aşırı Kaldıraç (Leverage) ve Borçlanma
* Finansal inovasyonlar, varlıkların üzerinde aşırı borç yaratılmasına dayanır.
* Bankalar ellerindeki gerçek para (hard money) miktarından fazla kredi verdiklerinde görünürde bir sınır yokmuş gibi görünse de, bu durum sürdürülemez.
* Krizler, bu borçların artık gerçek ödeme kapasitesiyle orantısız hale geldiği noktada baş gösterir.
“Tüm krizler... ödeme araçlarının altında yatan kapasiteyle tehlikeli biçimde orantısız hale gelmiş borçlarla ilgili olmuştur.”
2. Aşırı İyimserlik ve Spekülasyon
* Piyasalarda fiyatlar iyimserlik üzerine iyimserlikle şişirilir.
* İnsanlar, yükselen fiyatları rasyonel değil duygusal olarak besler.
* Bu ruh hali yaygınlaştığında ve “benzersiz fırsatlar” dillendirildiğinde, gerçekçilik yerini hayale bırakır.
“İyimserlik üzerine iyimserlik inşa edilerek fiyatlar yukarı çekildi.”
“Bir yatırım fırsatı etrafında heyecan varsa... bu, temkinli olma zamanıdır.”
3. Kendi Başarısını Abartma Eğilimi (Overconfidence)
* İnsanlar, özellikle zenginleştiğinde, başarısını kendi zekâsına atfeder.
* Bu da onları hatalara ve kör noktalara açık hale getirir.
“Herhangi bir bireyin zenginleştiğinde bu başarıyı kendi üstün zekâsına atfetmesindeki kolaylıktır.”
4. Kitle Psikolojisi ve İnkar Mekanizması
* Kriz anında insanlar suçu kendilerinde aramak istemez.
* Suç, geçmişteki spekülatörlere ya da olağan dışı olaylara atfedilir.
* Kimse sistemik sorunları veya kendi rolünü sorgulamaz.
“Dahil olanlar, aptallığı kendilerine yakıştıramazlar.”
“En önemsiz sorular ise en çok vurgulananlardır...”
5. Piyasaların İdealleştirilmesi ve Siyasi Körlük
* Piyasalar “kutsal” gibi algılanır, sorgulanmaz.
* Politik inançlar ekonomik beklentileri şekillendirir. Özellikle egemen siyasi görüşle zenginleşme arasında bağ kurulması, taraflı iyimserliği doğurur.
6. Yetersiz Şüphecilik
* Gerçek çözüm, piyasa coşkusuna karşı sürekli bir şüphecilik geliştirmektir.
* Aksi halde, insanlar tekrar tekrar aynı hatalara düşer.
“Bariz iyimserliğin muhtemel aptallıkla kararlılıkla ilişkilendirilmesini içeren gelişmiş bir şüphecilik…”
January 1, 2025
Important and wonderfully written. Galbraith gives a brilliant overview of market crashes from the tulip mania in the 1600 all the way up to bloody monday of 1987, and what we can learn from them. Everyone interested in investing or the functioning of markets would be well served by reading it and adding it to the long term memory.
Probably without aiming to do so, Galbraith deals a severe blow to the «market of rational agents»-prerequisite in the efficient market hypothesis by showing that not only agents at times not rational, they seem to have lost their head during the euphoria and not being able to retrieve it before after in aggregate with likeminded people losing their funds in an (over)correction - creating inefficiencies and possibilities for contrarians.
Also, the colorful and tongue-in-cheek writing style of Galbraith makes this journey of learning all the more fun!
Probably without aiming to do so, Galbraith deals a severe blow to the «market of rational agents»-prerequisite in the efficient market hypothesis by showing that not only agents at times not rational, they seem to have lost their head during the euphoria and not being able to retrieve it before after in aggregate with likeminded people losing their funds in an (over)correction - creating inefficiencies and possibilities for contrarians.
Also, the colorful and tongue-in-cheek writing style of Galbraith makes this journey of learning all the more fun!
March 20, 2025
"In fact, such reverence for the possession of money again indicates the shortness of memory, the ignorance of history, and the consequent capacity for self- and popular delusion".
April 25, 2023
Speculation buys up the intelligence of those involved.
Brilliant essay by perhaps the greatest economic mind of the 20th century.
In summary: There is no true financial innovation, only variations on the theme of leverage, and the specious association, or perceived but nonexistent correlation, between money and intelligence contributes to speculative euphoria and programmed collapse. In fact, “having money may mean, as often in the past and frequently in the present, that the person is foolishly indifferent to legal constraints and may, in modern times, be a potential resident of a minimum-security prison.”
Particularly love this quote: “... the discovery that high-risk bonds leveraged on limited assets should have a higher interest rate hardly stands on par as an invention with the electric light.” Ouch. Take that, dumbass Michael Milken, and everyone that invested with him!
The repeated emphasis on the problem lying with the market itself, not some invented or, at best, subordinate external factor is bold and brilliant. Particularly in 1990, when few others dared blaspheme the myth of the rational market.
Drumph even makes a small appearance at the end, and, charitably, Galbraith reserves his ire not for the charlatan himself, but for the idiot bankers that loaned him their depositors’ money.
Brilliant essay by perhaps the greatest economic mind of the 20th century.
In summary: There is no true financial innovation, only variations on the theme of leverage, and the specious association, or perceived but nonexistent correlation, between money and intelligence contributes to speculative euphoria and programmed collapse. In fact, “having money may mean, as often in the past and frequently in the present, that the person is foolishly indifferent to legal constraints and may, in modern times, be a potential resident of a minimum-security prison.”
Particularly love this quote: “... the discovery that high-risk bonds leveraged on limited assets should have a higher interest rate hardly stands on par as an invention with the electric light.” Ouch. Take that, dumbass Michael Milken, and everyone that invested with him!
The repeated emphasis on the problem lying with the market itself, not some invented or, at best, subordinate external factor is bold and brilliant. Particularly in 1990, when few others dared blaspheme the myth of the rational market.
Drumph even makes a small appearance at the end, and, charitably, Galbraith reserves his ire not for the charlatan himself, but for the idiot bankers that loaned him their depositors’ money.
January 5, 2015
A simple, concise book on the euphoria of crowds.
And everytime it's the same thing - euphoria based on a mutated new event/ reality.
And the crowd catches the fever.
Wonder what this book would have said about the IT bubble
And about the Great Recession
This is a book to go to everytime prices or emotions become a little heady.
And everytime it's the same thing - euphoria based on a mutated new event/ reality.
And the crowd catches the fever.
Wonder what this book would have said about the IT bubble
And about the Great Recession
This is a book to go to everytime prices or emotions become a little heady.
October 19, 2015
Un interesantísimo libro que ayuda a comprender los entresijos y funcionamiento de los mercados, que invita a pensar y a ser precavido con tus inversiones.
August 5, 2022
Even more superficial than the title implies.
January 9, 2020
The title says it all. Galbraith introduces the reader to the history of financial bubbles. Highly readable introduction to the topic, just enough to increase the appetite for more (e.g. books by Charles Mackay or Reinhart and Rogoff).
In this brief essay he describes the major financial crises: Tulipmania, John Law's scheme, South Sea Company, US railroad boom, 1929 crisis, and several 20th century moments of euphoria. The US takes the centre stage in the book as a place where many recent bubbles appeared. Galbraith writes that the history repeats itself, even though each new episode of euphoria is apparently driven by another innovation, the real reason is always the same: delusional beliefs in one's own financial acumen and greed.
In this brief essay he describes the major financial crises: Tulipmania, John Law's scheme, South Sea Company, US railroad boom, 1929 crisis, and several 20th century moments of euphoria. The US takes the centre stage in the book as a place where many recent bubbles appeared. Galbraith writes that the history repeats itself, even though each new episode of euphoria is apparently driven by another innovation, the real reason is always the same: delusional beliefs in one's own financial acumen and greed.
August 29, 2024
Galbraith made two important points in this book:
1. Financial memory is extremely short and financial disaster is quickly forgotten.
2. All financial innovation has involved similar debt creation leveraged against more limited assets with only modifications in the earlier design. All crises have involved debt that, in one fashion, or another, has become dangerously out of scale in relation to the underlying means of payment.
1. Financial memory is extremely short and financial disaster is quickly forgotten.
2. All financial innovation has involved similar debt creation leveraged against more limited assets with only modifications in the earlier design. All crises have involved debt that, in one fashion, or another, has become dangerously out of scale in relation to the underlying means of payment.
January 4, 2026
A quick, but good, read on past bubbles/manias. While a bit heavy handed at times, definitely illustrative of how behavioral finance/greed play into exuberance of market participants and thus overvaluation of asset prices. Nothing really new for anyone with a finance/econ background, but a good refresher. Great for anyone not involved in markets daily.
March 24, 2021
A very brief read on the manias of South sea, Tulips, the 1929 and 1980s crash.
To summarise:
1) Manias are part and parcel of financial markets. One can navigate them but they can't be avoided
2) Those who seem to have credibility and petition new financial innovations are those that are the ultimate fall guys( think now ARK, CHAMATH, MUSK)
3) The underlying emotion of " things only go up" is the first sign of the mania
4) Never is mania attributed to the public and their fervour, it is only attributable to certain individuals/extraneous factors
To summarise:
1) Manias are part and parcel of financial markets. One can navigate them but they can't be avoided
2) Those who seem to have credibility and petition new financial innovations are those that are the ultimate fall guys( think now ARK, CHAMATH, MUSK)
3) The underlying emotion of " things only go up" is the first sign of the mania
4) Never is mania attributed to the public and their fervour, it is only attributable to certain individuals/extraneous factors
March 15, 2022
An essay on financial speculation and crashes. From the dutch tulip mania to the 1987 crash, the author explores the common factors that underlie massive speculation , financial euphoria and crash.
Financial memory is short-lived. Speculation comes alive in different forms over and over again.
Liked the book/ essay. Insightful.
Financial memory is short-lived. Speculation comes alive in different forms over and over again.
Liked the book/ essay. Insightful.
December 20, 2023
Very readable economic history essay. Unfortunately it's a little old now. Want an update.
March 22, 2026
A really interesting overview of financial crises, spanning from the “Tulip Mania” in 1630s Holland to the 1989 US recession. The author argues that all financial crises share a common pattern of events: people looking to “get rich quick” rush to invest in the latest speculative craze. As the market gets more and more leveraged, the bubble eventually pops, and the entire system collapses, leading to widespread financial ruin. This cycle has happened repeatedly throughout history (about every 20 years in the US). Although this book was written in the 1990s, the same pattern can explain the 2008 financial crisis, which was about 20 years ago… makes you wonder what kind of cycle we’re in now?
May 25, 2026
A great book to read while waiting for the next crash... most of it will sound very familiar...
Rapidly rising prices on an investment often seem like the human equivalent of a moth to the flame. The now very familiar situation has become almost a cliché. A stock, a collectible or just about anything begins to soar in price and the inevitable "get rich now" or "don't miss out" messages blare throughout the credulous troposphere. "Left behind" anxiety causes enough people to flock to the "thing du jour" and place their bets, causing the price to catapult even higher. This attracts yet more half-human half-moth creatures and the thing's "value" reaches levels that, especially for those not caught up in the frenzy, seem offensive to reason. Some participants harbor illusions that the price will just keep rising inevitably, possibly until the end of the universe itself, and hold on tightly to the treasure, which now feels more precious than life itself. Sadly, the gorgeous butterfly that everyone expects from this speculative pupa rarely, if ever, emerges. One can fill a balloon with only so much goo before it bursts into an obnoxious spray.
Many probably still remember the inexplicable "Beanie Baby" craze and crash. Fewer may remember the sports card insanity of the 1980s and 1990s and its sobering denouement. Some today might wonder at the extravagant prices paid for sealed video games that seem to just keep elevating into ridiculous realms. All of these stories have the same predictable narrative structure and tend to end in tragedy for many players. The most unfortunate stake their kids' college education money or their life savings on these inimical miasmas. Others find themselves left with piles of unsellable junk. Such behavior also goes back further in time than most people probably realize. Not to mention that larger and far more serious speculative episodes, usually performed on stock markets, not only ruin individual people's finances, but can also devastate entire economies. The crashes that occurred in 2008 had far reaching consequences and arguably resulted from similar, though more financially complicated, market gambling.
Those with longer memories will likely remember a similar economic disaster, often called "Black Monday," in October, 1987. That catastrophic downturn apparently inspired the renowned economist John Kenneth Galbraith to write "A Short History of Financial Euphoria" back in 1990. This small and accessible book covers the main elements of the infamous "boom and bust" event and presents a long history of examples for emphasis. It also argues that, upon analysis, these events follow a nearly identical pattern to each other, but no one seems to notice or care about this obvious fact. People just fall for the same devices and gimmicks over and over again and an egregiously short collective financial memory allows for their seemingly eternal recurrence. Galbraith's frustration with this annoying flaw in human nature sometimes bubbles up through some of the passages. As someone who had lived through the 1929 crash and the Great Depression, not to mention serving in the administrations of FDR, Truman, JFK and LBJ, he held a wide perspective on the tumultuous 20th century. Given his direct involvement in politics and his sometimes unorthodox economic ideas, he remains a controversial figure in some circles.
In 1993, Galbraith added a short forward to the book that provides an overview of the time. Speculative episodes appear "inherent in the system," so "perhaps it is better that this be recognized as accepted." A brief mention of Donald Trump, then a "celebrity investor" and a long way from the White House, only says that "he's said not to be broke." As for the recession of 1990, he blames it on speculation in real estate, "junk bonds," hostile takeovers and leveraged buyouts and credits it all for ending George H.W. Bush's presidency - "destroyed by Wall Street like Hoover." The first chapter, "The Speculative Episode," delineates the simple and often repeated cycle of "mass insanity": prices go up, new buyers arrive, prices go up more, people hold on to the investment until "the inevitable reversal" when people began selling off their holdings, often in panic, and the crash comes quicker than anyone thought imaginable. He adds that many think that "their genius" will help them determine when to exit the euphoria before the collapse begins. Unfortunately, he claims, "speculation buys up... the intelligence of those involved."
Those who openly criticize the mania often receive sharp rebukes, especially from those inciting the event. As prices rise, people want to believe that their money will increase and sane reason has no place in the discourse. Only after the crash do such critics suddenly become "geniuses" to have seen the end coming. Galbraith seems to argue that it doesn't take a genius to recognize a recurring pattern, especially one that has occurred time and time again, but "financial disaster is quickly forgotten." The second chapter analyzes the specious association people often make between wealth and intelligence. They see a rich person and assume they made their fortune from their superior intellect. The rich people themselves often have little incentive to dissuade this thinking and it often plays into the marketing of a speculative episode. After all, why wouldn't someone do exactly what a "smart" rich person did? It obviously worked for them. Many learn this lesson the hard way and Galbraith coined an aphorism appropriate for this very topic, suitable for framing: "financial genius is before the fall."
Financial euphorias often originate in so-called "financial innovations" or "something new" in the market. Yet, says Galbraith, "financial operations do not lend themselves to innovation" and often involve stretching, or leveraging, debt beyond its original value. To take a historical example, in "hard money" days, banks would often print paper banknotes beyond the actual amount of metal that they held in their vaults. Many of these notes promised an "on demand" exchange for gold or silver, which for many people gave the paper its true value. This worked well enough, until a run on the bank happened, when banknote holders demanded their metal and found out that the bank actually had none. A crash in the over-leveraged and apparently now valueless banknotes followed since no one would accept them as payment. More recently, others have applied this same principle to stocks and ownership bonds. For instance, someone might issue shares for a company well beyond that company's actual holdings or real value. People buy such "securities" and happily watch the price rise as the leverage increases, not knowing that their money rests on a large fantasy of debt leverage. As the price increases, the "investment" looks more attractive, driving more sales and even higher prices. Who could resist? A revelation of the scheme, or some negative or suspicious news, then kicks off frantic selling and those who haven't exited by then will likely lose everything.
Who then takes the blame? Galbraith says that "theology" keeps the market itself innocent and neutral. Market "faith" has made it into an instrument beyond reproach, something utterly incapable of making mistakes, like the "infallible" monarchs of ages past. Elements outside of the market receive blame instead, such as insider trading, rigging, regulations or reforms. No one dares mention "mass hysteria" or even "mass stupidity" as probable causes after a precarious rise and fall. The next few chapters provide examples from history to reveal the repeating pattern. This history begins in Amsterdam in the late 1630s with the infamous "Tulipomania," which witnessed the price of tulip bulbs burgeoning to unimaginable heights. Many found themselves destitute after the frenetic sell-off. This scenario should sound very familiar, not to mention serve as a dire warning, to any "investor" in collectibles. Soon after, John Law set up the Banque Royale in 1716 France and issued greatly leveraged "hard money" backed banknotes. The crash ruined many, but Law escaped to Venice. Everyone blamed him, and only him, for the financial carnage. In 1711 Britain, the South Sea Company, a new joint-stock company, or corporation, leveraged shares and many, including members of Parliament and even Issac Newton, lost considerable sums under the "questionable enterprise."
In the United States, crashes once occurred with almost predictable regularity. Banks appeared everywhere around the War of 1812 and many leveraged banknotes entered circulation. The collapse came in 1819, inaugurating a coming trend for the young country. "Panic" became a feared word and the worst occurred in 1837, 1857, 1873, 1907 and of course in 1929. The "Great Crash," argues Galbraith, began with an era of "unfettered optimism" under Coolidge that led to mass speculation and ultimately to capitalism's greatest crisis under Hoover. Even prominent academics boosted the mania, driving more people in like a whirlpool. Naysayers found themselves outcast and largely silenced. Following the chaos, the SEC appeared brandishing some regulations against pyramid schemes, ones such as Charles Ponzi had applied earlier to real estate. Once again, no one blamed speculation itself, but the damage proved so colossal that markets remained fairly steady for a few decades. Galbraith blames the renewed Coolidge-esque "optimism" on the Reagan era and the age of leveraged buyouts and debt. In the 1980s, high risk "junk bonds" became the new "innovation" that at first seemed to distribute new wealth everywhere. Reality intervened in October, 1987, but regulations installed after 1929 kept the situation from becoming even worse. Nonetheless, some blamed the regulations for the blowout. As usual, no one blamed speculation or downright careless irresponsibility for the worst financial disaster to hit Wall Street since 1929. Galbraith, who commented on the speculation at the time, found it "predictable."
The book ends with a prediction that other such catastrophes will occur in the future. One did in 2008, but Galbraith had died two years earlier at age 97. The question lingers: can anyone stop such destructive euphoric events? Galbraith blames the ongoing but tenuous association of wealth with intelligence, the sparse silence dictated around the flaws of the very flawed market and a general lack of skepticism about "fast wealth." Outlawing or legislating against speculation itself or against reckless stupidity, though tempting, obviously has no basis in reality. Education against self-delusion and confirmation bias also seems appropriate for just about everybody in a market economy. The book suggests one more valuable lesson: learn the general characteristics and patterns of speculative bubbles and know that leaping out of one "just in time with the greatest possible return" remains more a matter of luck than skill.
"A Short History of Financial Euphoria" may focus on euphoria associated with large markets or entire economies, and it may seem a little dated in places, but the principles it outlines remain valid today and they can also apply to smaller-scale bubbles such as collectibles. Euphorias can take many shapes and people can lose money in both large and small episodes. As such, this small and highly readable book contains lessons and cautionary tales for anyone who lives in a market economy. These days that means pretty much everyone. Read it while waiting for the next crash. Don't worry, it'll come.
Rapidly rising prices on an investment often seem like the human equivalent of a moth to the flame. The now very familiar situation has become almost a cliché. A stock, a collectible or just about anything begins to soar in price and the inevitable "get rich now" or "don't miss out" messages blare throughout the credulous troposphere. "Left behind" anxiety causes enough people to flock to the "thing du jour" and place their bets, causing the price to catapult even higher. This attracts yet more half-human half-moth creatures and the thing's "value" reaches levels that, especially for those not caught up in the frenzy, seem offensive to reason. Some participants harbor illusions that the price will just keep rising inevitably, possibly until the end of the universe itself, and hold on tightly to the treasure, which now feels more precious than life itself. Sadly, the gorgeous butterfly that everyone expects from this speculative pupa rarely, if ever, emerges. One can fill a balloon with only so much goo before it bursts into an obnoxious spray.
Many probably still remember the inexplicable "Beanie Baby" craze and crash. Fewer may remember the sports card insanity of the 1980s and 1990s and its sobering denouement. Some today might wonder at the extravagant prices paid for sealed video games that seem to just keep elevating into ridiculous realms. All of these stories have the same predictable narrative structure and tend to end in tragedy for many players. The most unfortunate stake their kids' college education money or their life savings on these inimical miasmas. Others find themselves left with piles of unsellable junk. Such behavior also goes back further in time than most people probably realize. Not to mention that larger and far more serious speculative episodes, usually performed on stock markets, not only ruin individual people's finances, but can also devastate entire economies. The crashes that occurred in 2008 had far reaching consequences and arguably resulted from similar, though more financially complicated, market gambling.
Those with longer memories will likely remember a similar economic disaster, often called "Black Monday," in October, 1987. That catastrophic downturn apparently inspired the renowned economist John Kenneth Galbraith to write "A Short History of Financial Euphoria" back in 1990. This small and accessible book covers the main elements of the infamous "boom and bust" event and presents a long history of examples for emphasis. It also argues that, upon analysis, these events follow a nearly identical pattern to each other, but no one seems to notice or care about this obvious fact. People just fall for the same devices and gimmicks over and over again and an egregiously short collective financial memory allows for their seemingly eternal recurrence. Galbraith's frustration with this annoying flaw in human nature sometimes bubbles up through some of the passages. As someone who had lived through the 1929 crash and the Great Depression, not to mention serving in the administrations of FDR, Truman, JFK and LBJ, he held a wide perspective on the tumultuous 20th century. Given his direct involvement in politics and his sometimes unorthodox economic ideas, he remains a controversial figure in some circles.
In 1993, Galbraith added a short forward to the book that provides an overview of the time. Speculative episodes appear "inherent in the system," so "perhaps it is better that this be recognized as accepted." A brief mention of Donald Trump, then a "celebrity investor" and a long way from the White House, only says that "he's said not to be broke." As for the recession of 1990, he blames it on speculation in real estate, "junk bonds," hostile takeovers and leveraged buyouts and credits it all for ending George H.W. Bush's presidency - "destroyed by Wall Street like Hoover." The first chapter, "The Speculative Episode," delineates the simple and often repeated cycle of "mass insanity": prices go up, new buyers arrive, prices go up more, people hold on to the investment until "the inevitable reversal" when people began selling off their holdings, often in panic, and the crash comes quicker than anyone thought imaginable. He adds that many think that "their genius" will help them determine when to exit the euphoria before the collapse begins. Unfortunately, he claims, "speculation buys up... the intelligence of those involved."
Those who openly criticize the mania often receive sharp rebukes, especially from those inciting the event. As prices rise, people want to believe that their money will increase and sane reason has no place in the discourse. Only after the crash do such critics suddenly become "geniuses" to have seen the end coming. Galbraith seems to argue that it doesn't take a genius to recognize a recurring pattern, especially one that has occurred time and time again, but "financial disaster is quickly forgotten." The second chapter analyzes the specious association people often make between wealth and intelligence. They see a rich person and assume they made their fortune from their superior intellect. The rich people themselves often have little incentive to dissuade this thinking and it often plays into the marketing of a speculative episode. After all, why wouldn't someone do exactly what a "smart" rich person did? It obviously worked for them. Many learn this lesson the hard way and Galbraith coined an aphorism appropriate for this very topic, suitable for framing: "financial genius is before the fall."
Financial euphorias often originate in so-called "financial innovations" or "something new" in the market. Yet, says Galbraith, "financial operations do not lend themselves to innovation" and often involve stretching, or leveraging, debt beyond its original value. To take a historical example, in "hard money" days, banks would often print paper banknotes beyond the actual amount of metal that they held in their vaults. Many of these notes promised an "on demand" exchange for gold or silver, which for many people gave the paper its true value. This worked well enough, until a run on the bank happened, when banknote holders demanded their metal and found out that the bank actually had none. A crash in the over-leveraged and apparently now valueless banknotes followed since no one would accept them as payment. More recently, others have applied this same principle to stocks and ownership bonds. For instance, someone might issue shares for a company well beyond that company's actual holdings or real value. People buy such "securities" and happily watch the price rise as the leverage increases, not knowing that their money rests on a large fantasy of debt leverage. As the price increases, the "investment" looks more attractive, driving more sales and even higher prices. Who could resist? A revelation of the scheme, or some negative or suspicious news, then kicks off frantic selling and those who haven't exited by then will likely lose everything.
Who then takes the blame? Galbraith says that "theology" keeps the market itself innocent and neutral. Market "faith" has made it into an instrument beyond reproach, something utterly incapable of making mistakes, like the "infallible" monarchs of ages past. Elements outside of the market receive blame instead, such as insider trading, rigging, regulations or reforms. No one dares mention "mass hysteria" or even "mass stupidity" as probable causes after a precarious rise and fall. The next few chapters provide examples from history to reveal the repeating pattern. This history begins in Amsterdam in the late 1630s with the infamous "Tulipomania," which witnessed the price of tulip bulbs burgeoning to unimaginable heights. Many found themselves destitute after the frenetic sell-off. This scenario should sound very familiar, not to mention serve as a dire warning, to any "investor" in collectibles. Soon after, John Law set up the Banque Royale in 1716 France and issued greatly leveraged "hard money" backed banknotes. The crash ruined many, but Law escaped to Venice. Everyone blamed him, and only him, for the financial carnage. In 1711 Britain, the South Sea Company, a new joint-stock company, or corporation, leveraged shares and many, including members of Parliament and even Issac Newton, lost considerable sums under the "questionable enterprise."
In the United States, crashes once occurred with almost predictable regularity. Banks appeared everywhere around the War of 1812 and many leveraged banknotes entered circulation. The collapse came in 1819, inaugurating a coming trend for the young country. "Panic" became a feared word and the worst occurred in 1837, 1857, 1873, 1907 and of course in 1929. The "Great Crash," argues Galbraith, began with an era of "unfettered optimism" under Coolidge that led to mass speculation and ultimately to capitalism's greatest crisis under Hoover. Even prominent academics boosted the mania, driving more people in like a whirlpool. Naysayers found themselves outcast and largely silenced. Following the chaos, the SEC appeared brandishing some regulations against pyramid schemes, ones such as Charles Ponzi had applied earlier to real estate. Once again, no one blamed speculation itself, but the damage proved so colossal that markets remained fairly steady for a few decades. Galbraith blames the renewed Coolidge-esque "optimism" on the Reagan era and the age of leveraged buyouts and debt. In the 1980s, high risk "junk bonds" became the new "innovation" that at first seemed to distribute new wealth everywhere. Reality intervened in October, 1987, but regulations installed after 1929 kept the situation from becoming even worse. Nonetheless, some blamed the regulations for the blowout. As usual, no one blamed speculation or downright careless irresponsibility for the worst financial disaster to hit Wall Street since 1929. Galbraith, who commented on the speculation at the time, found it "predictable."
The book ends with a prediction that other such catastrophes will occur in the future. One did in 2008, but Galbraith had died two years earlier at age 97. The question lingers: can anyone stop such destructive euphoric events? Galbraith blames the ongoing but tenuous association of wealth with intelligence, the sparse silence dictated around the flaws of the very flawed market and a general lack of skepticism about "fast wealth." Outlawing or legislating against speculation itself or against reckless stupidity, though tempting, obviously has no basis in reality. Education against self-delusion and confirmation bias also seems appropriate for just about everybody in a market economy. The book suggests one more valuable lesson: learn the general characteristics and patterns of speculative bubbles and know that leaping out of one "just in time with the greatest possible return" remains more a matter of luck than skill.
"A Short History of Financial Euphoria" may focus on euphoria associated with large markets or entire economies, and it may seem a little dated in places, but the principles it outlines remain valid today and they can also apply to smaller-scale bubbles such as collectibles. Euphorias can take many shapes and people can lose money in both large and small episodes. As such, this small and highly readable book contains lessons and cautionary tales for anyone who lives in a market economy. These days that means pretty much everyone. Read it while waiting for the next crash. Don't worry, it'll come.
May 25, 2022
Un libro de más de 300 años de euforia financiera para todo público.
Un libro corto, ameno, contundente, y sobre todo, que le ayudará a poner en perspectiva lo que hoy parece una "innovación financiera"
La pregunta que me surgió en pleno 2022: ¿son muchas de las criptos la siguiente burbuja que se pinchará? ¿Es el colapso de Luna solo el inicio?
Lean el libro y me cuentan
Un libro corto, ameno, contundente, y sobre todo, que le ayudará a poner en perspectiva lo que hoy parece una "innovación financiera"
La pregunta que me surgió en pleno 2022: ¿son muchas de las criptos la siguiente burbuja que se pinchará? ¿Es el colapso de Luna solo el inicio?
Lean el libro y me cuentan
August 13, 2015
Galbraith's reputation as an economist isn't what it once was. There are few takers these days for tomes such as American Capitalism, The New Industrial State, or Economics and the Public Purpose, although The Affluent Society retains a readership. But as a writer of popular, accesible economics, he is, in my view, up there with Bastiat. His The Great Crash of 1929 is an excellent bit of descriptive writing and this short book is another riff on its themes.
Are the causes of economic events such as assets bubbles and busts endogenous - originating within the economic system, such as central bank action or new innovations - or exogenous - originating outside it, such as natural disasters? Galbraith comes down very firmly for the latter, rooting his explanation entirely in group psychology. For the same reasons I didn't much like Animal Spirits, I find the total reliance on group psychology unsatisfactory. In the most recent boom and bust, that of sub prime mortgages and their derivatives, there were plenty of endogenous factors which cannot be ignored.
But Galbraith makes some good points. His focus on the repeated presence of leverage in these events is interesting and it is a shame that space does not allow for a more systematic analysis. Also, Galbraith is entirely right to castigate the quest for 'the' person to blame after the bust. For all the fuss about bankers since 2008, little popular flak has been directed at central bankers.
Are the causes of economic events such as assets bubbles and busts endogenous - originating within the economic system, such as central bank action or new innovations - or exogenous - originating outside it, such as natural disasters? Galbraith comes down very firmly for the latter, rooting his explanation entirely in group psychology. For the same reasons I didn't much like Animal Spirits, I find the total reliance on group psychology unsatisfactory. In the most recent boom and bust, that of sub prime mortgages and their derivatives, there were plenty of endogenous factors which cannot be ignored.
But Galbraith makes some good points. His focus on the repeated presence of leverage in these events is interesting and it is a shame that space does not allow for a more systematic analysis. Also, Galbraith is entirely right to castigate the quest for 'the' person to blame after the bust. For all the fuss about bankers since 2008, little popular flak has been directed at central bankers.
February 5, 2016
Short and sweet, witty, humorous, and yet informative. Galbraith shares his characterization of episodes of speculation, then gives the account of a dozen such episodes, from Holland's tulip mania to the crash of October 1987.
Some key ideas:
a) The average person believes that people of great wealth (or who manage great wealth) are rich because of their superior intellect. When the average person becomes richer during an euphoria, he also tends to believe that the new riches are the product of his superior insight or intuition.
b) Euphorias end at an unpredictable time, and always in a crash, never gently.
c) Euphorias coincide with the rise of a presumed financial innovation that partly justifies the rising prices and valuations. Very few, however, true innovations ever occur, and most of these apparent innovations involve the creation of debt.
d) Crashes are followed by anger and recrimination and scapegoating. The analysis of the crash seldom places any blame on the stupidity and greed and gullibility of the people who drove the bubble, for two reasons. First, it runs counter to the presumption that wealth is associated with intelligence. Second, the market is supposed to be always right.
e) Besides educating people about their behavioral tendencies and the euphoria process, there's not much we can do. More regulation is not necessarily the solution.
Galbraith's essay pales in comparison with the exhaustiveness of, for instance, Kindleberger's history of panics, and it's not a substitute for those more extensive books. But it's much better written and digestible than those longer treatments, and so it's more likely that lay readers read it through.
Great quotes:
pp. 98-99:
"The aftermath of 1987 debacle saw an especially notable exercise in evasion even by the formidable standards of the past. The first response came from a convocation of former Secretaries of the Treasury, professional public spokesmen, and chief executive officers of major corporations. They joined in sponsoring a 'New York Times' advertisement attributing the crash to the deficit in the budget of the federal government. This deficit had already persisted in what was considered by fiscal conservatives an alarming magnitude for the preceding six years of the Reagan administration. But then, on that terrible October morning, realization was thought to have dawned. The financial markets suddenly became aware."
Some key ideas:
a) The average person believes that people of great wealth (or who manage great wealth) are rich because of their superior intellect. When the average person becomes richer during an euphoria, he also tends to believe that the new riches are the product of his superior insight or intuition.
b) Euphorias end at an unpredictable time, and always in a crash, never gently.
c) Euphorias coincide with the rise of a presumed financial innovation that partly justifies the rising prices and valuations. Very few, however, true innovations ever occur, and most of these apparent innovations involve the creation of debt.
d) Crashes are followed by anger and recrimination and scapegoating. The analysis of the crash seldom places any blame on the stupidity and greed and gullibility of the people who drove the bubble, for two reasons. First, it runs counter to the presumption that wealth is associated with intelligence. Second, the market is supposed to be always right.
e) Besides educating people about their behavioral tendencies and the euphoria process, there's not much we can do. More regulation is not necessarily the solution.
Galbraith's essay pales in comparison with the exhaustiveness of, for instance, Kindleberger's history of panics, and it's not a substitute for those more extensive books. But it's much better written and digestible than those longer treatments, and so it's more likely that lay readers read it through.
Great quotes:
pp. 98-99:
"The aftermath of 1987 debacle saw an especially notable exercise in evasion even by the formidable standards of the past. The first response came from a convocation of former Secretaries of the Treasury, professional public spokesmen, and chief executive officers of major corporations. They joined in sponsoring a 'New York Times' advertisement attributing the crash to the deficit in the budget of the federal government. This deficit had already persisted in what was considered by fiscal conservatives an alarming magnitude for the preceding six years of the Reagan administration. But then, on that terrible October morning, realization was thought to have dawned. The financial markets suddenly became aware."
October 5, 2023
I really wonder why I haven’t read Galbraith before. Far from this book being a dry analysis of financial bubbles, It’s a snarky and easy to read look at the mechanisms hucksters (Wall Street and financial speculators when the book was written) use to bilk people out of their money and more importantly, why people continually allow themselves to be swindled.
For Galbraith, this comes down to several factors. The first being that those of us not in finance tend to ascribe intelligence or some kind of wizardry to those that are. As Galbraith aptly states it, it doesn’t necessarily make someone intelligent being born into wealth or worse, conning other people out of theirs. A bad or lazy person perhaps, but not necessarily smart. More importantly, those who raise a voice questioning the wisdom of what these scammers are selling are tarred and feathered as being behind the times or simply not understanding what these financial wizards are doing.
Hi Bitcoin. there’s a call for you on line one.
The other perhaps larger problem is lack of institutional memory most of the public seems to posses. Galbraith estimates that the public forgets most major corporate malfeasance after about 20 years. At which point it is often the same scam, dressed up slightly differently, that once again fleeces people who should’ve learned from experience.
It made me think of the Fyre festival guy who conned millions out of people who thought they were getting a luxury weekend on an isolated island and ended up getting evacuation tents and cheese sandwiches. That this same guy is back after five years, promoting what sounds eerily similar to what got him thrown in jail, and selling tickets by the thousands for it, would seem to prove that Galbraith knew exactly what he was talking about.
September 9, 2014
Galbraith, John. A short history of financial euphoria, Whittle books (Viking), Viking Penguin, New York, 1993. Hardcover, 113 pages.
Rating: 7/10
Following a series of extraordinarily bad fiction books, it was a delight to turn to Galbraith, whom I had not read since my college days. A short history of financial euphoria can be read in two hours, it offers amusement as well as utility.
All of us regularly come across people who believe in earning 20-100% on stock markets, who genuinely believe the markets can go up for ever, glued to the business TV channels they are convinced of their financial wizardry, they have discovered singular mechanisms to outwit the market and make money. Galbraith in one sentence describes those people: “Financial genius is before the fall.”
This book presents, in a story form, the “bubble” episodes of the past three hundred years, starting with Tulipomania, an irrational craze in Western Europe to invest in Tulip bulbs. This is followed by Britain’s South Sea bubble, and the 18th century obsession with joint stock companies (which continues till today). The meaning of leverage can be truly understood on reading this book.
Financial memory is short and doesn’t last for more than twenty years. Greed is an overpowering emotion as compared to caution. Galbraith’s book warns us with historical evidence that the bubbles, the pyramid schemes and the scheming crooks on one hand and the gullible financial wizards have existed for more than three centuries. Euphoria is inevitably followed by bust, disgrace, even exile or suicide.
Verdict: If you believe you can make huge money in markets, you must read this book to temper your optimism.
Rating: 7/10
Following a series of extraordinarily bad fiction books, it was a delight to turn to Galbraith, whom I had not read since my college days. A short history of financial euphoria can be read in two hours, it offers amusement as well as utility.
All of us regularly come across people who believe in earning 20-100% on stock markets, who genuinely believe the markets can go up for ever, glued to the business TV channels they are convinced of their financial wizardry, they have discovered singular mechanisms to outwit the market and make money. Galbraith in one sentence describes those people: “Financial genius is before the fall.”
This book presents, in a story form, the “bubble” episodes of the past three hundred years, starting with Tulipomania, an irrational craze in Western Europe to invest in Tulip bulbs. This is followed by Britain’s South Sea bubble, and the 18th century obsession with joint stock companies (which continues till today). The meaning of leverage can be truly understood on reading this book.
Financial memory is short and doesn’t last for more than twenty years. Greed is an overpowering emotion as compared to caution. Galbraith’s book warns us with historical evidence that the bubbles, the pyramid schemes and the scheming crooks on one hand and the gullible financial wizards have existed for more than three centuries. Euphoria is inevitably followed by bust, disgrace, even exile or suicide.
Verdict: If you believe you can make huge money in markets, you must read this book to temper your optimism.
August 25, 2010
Déjà vu all over again. That seems to be the pattern of financial boom and bust. In this slender volume, John Kenneth Galbraith selectively traces episodes of speculative excess from the Tulipomania of the mid-17th century through the Crash of '87. Why don't we ever learn? Galbraith identifies several reasons. First, collective memories of financial debacles tend to be very short; therefore, each new generation of financial "wizards" can effectively start over with a blank slate. Second, each wave of new financial instruments is billed as unprecedented and novel (and therefore exempt from the failings of earlier ones) although in fact they are nothing but recycled ideas in new clothes. Third, people wrongly tend to equate money with intelligence: If Investor X is making all that money, he must be especially wise. Fourth, when a crash comes, the explanation tends to be located in handy scapegoats (e.g., unregulated financial institutions, corruption, insider trading) rather than in greed and speculation which are inherent to market cycles.
Although first published in 1990, this elegant little book could have been written yesterday. It doubtless won't prevent the next economic downturn, just as it failed to prevent the last one, but we can't say that no warnings have been available.
Although first published in 1990, this elegant little book could have been written yesterday. It doubtless won't prevent the next economic downturn, just as it failed to prevent the last one, but we can't say that no warnings have been available.
April 22, 2010
This book was referenced several times in "Juggling Dynamite" so I thought I'd check it out. Galbraith's style reminds me of the intellectuals I was always tripping over at the University but he's quite readable. In fact, the book is pretty funny in a sarcastic, cutting kind of way.
Galbraith reviews the aspects of human nature and the economy that allow us to constantly go into boom and bust cycles. He starts around the time of "Tulipomania" in the 1600s and goes right up through the 20th century with examples of euphoric times and their inevitable disasterous endings.
Definitely worth reading if you're educating yourself in the ways of finance.
Galbraith reviews the aspects of human nature and the economy that allow us to constantly go into boom and bust cycles. He starts around the time of "Tulipomania" in the 1600s and goes right up through the 20th century with examples of euphoric times and their inevitable disasterous endings.
Definitely worth reading if you're educating yourself in the ways of finance.
August 11, 2009
Most recently updated 1993. Scary. Could have been written in July 2009. Brilliantly executed descriptions of euphorias(ae?) of the past.
Only short-coming is that it's very short on the prescriptive. Ends with a bit shrug of the shoulders.
Only short-coming is that it's very short on the prescriptive. Ends with a bit shrug of the shoulders.
July 7, 2015
Read this for my history extension essay and the blatant doneness gradually ceases to be subtle toward the end and that was my favourite part. I could almost hear the *sigh* emanating from its pages.
On a separate but related note. All economists I've read so far have sounded so, so annoyed?
On a separate but related note. All economists I've read so far have sounded so, so annoyed?
August 12, 2015
From Tulipomania to the 1987 crash Galbraith shares the common themes of the various financial boom and bust cycles. A very short 100 page read but definitely some great negative history we must be aware and changes your view of financial markets.
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