A Short History of Financial Euphoria
Author: John Kenneth Galbraith
How is it that, with all the financial know-how and experience of the wizards on Wall Street and elsewhere, the market still goes boom and bust? How come people are so willing to get caught up in the mania of speculation when history tells us that a collapse is almost sure to follow? In A Short History of Financial Euphoria, renowned economist John Kenneth Galbraith reviews, with insight and wit, the common features of the great speculative episodes of the last three centuries - the seventeenth-century craze in Western Europe for investing in an unusual commodity: the tulip; Britain's South Sea Bubble and the eighteenth century's fascination with the joint-stock company, now called the corporation; and, more recently, the discovery of leverage in the form of junk bonds. Along the way, Galbraith explains the newfangled types of debt that different generations have dreamt up, and he entertains with anecdotes about the ingenuity with which some of the more notorious charlatans have convinced people to invest in financial ciphers. Galbraith calls this book "a hymn of caution" for good reason. He warns that the time will come when the public hails yet another financial wizard. In that case, the reader will do well to remember the Galbraithian adage: "Financial genius is before the fall." The appearance of the next John Law, Robert Campeau, or Michael Milken may well be, after all, a harbinger of disaster.
Galbraith's entertaining, wonderfully instructive cautionary essay should be required reading for investors. His focus is ``recurrent lapses into financial dementia,'' reckless speculative episodes fueled by greed, euphoria and investors' delusion that their temporary good fortune is due to their own superior financial acumen. The renowned Harvard economist chronicles a series of ``flights into mass insanity,'' from wild speculation in tulip bulbs in 17th-century Holland through the U.S. stock market crash of 1929, the 1980s mergers-and-acquistions mania and the savings and loan scandal. Comparing these crises, he finds recurring common features, such as evasion of hard realities, new financial instruments presumed to be of stunning novelty and debt that became dangerously out of scale in relation to the underlying means of payment. His proposed remedy is ``enhanced skepticism'' on the part of investors and the public. (June)
No matter what your political leanings or economic beliefs might be, there is no denying that Galbraith is a brilliant writer. In this humorous and thoughtful book, he traces the investor ``herd'' mentality from Tulipomania, which gripped Holland in the 1630s, through a variety of events and up through the 1987 stock market debacle--which he accurately predicted. Galbraith analyzes the crashes that resulted from these speculative episodes, and he points out that the ``mass escape from sanity by people in pursuit of profit,'' which, in his opinion, is always the cause, is never blamed. A truly excellent book, this is highly recommended.-- C. Christopher Pavek, Putnam, Hayes & Bartlett, Inc. Information Ctr., Washington, D.C.
A "hymn of caution" (the author's words) originally published in 1990 by Whittle Books--and still in print--as part of the Larger Agenda Series. Reprinted here with a new foreword. In this small (5.75x8.75"), slim book, its brevity compelling attention, the eminent economist chronicles the histories of several great speculative periods of the last three centuries, discussing their sad aftermaths and analyzing the peculiar pitfalls of get-rich-quick schemes. No index. Annotation c. Book News, Inc., Portland, OR (booknews.com)
Table of Contents:
|Foreword to the 1993 Edition|
|1||The Speculative Episode||1|
|2||The Common Denominators||12|
|3||The Classic Cases, I: The Tulipomania; John Law and the Banque Royale||26|
|4||The Classic Cases, II: The Bubble||43|
|5||The American Tradition||53|
|Notes on Sources||111|
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