Financial Euphoria and unstable finance make dicey bedfellows. Widespread naivete, even stupidity, is manifest; mention of this, however, runs drastically counter to the earlier-noted presumption that intelligence is intimately associated with money. In the end, a small-very small-window of opportunity did open. The closed-end investment trusts of United Founders Corporation, Goldman, Sachs, and many other similar enterprises were especially celebrated for their genius in discovering and using leverage. A short history of financial euphoria can be read in two hours, it offers amusement as well as utility.
Why don't we ever learn? Alas, the only remedy would have been to restore the price of the bulbs to the precrash level, but this was manifestly impractical, and so the so recently rich were left with their loss. It is adjusting to a new situation, a new world of greatly, even infinitely increasing returns and resulting values. 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. The younger Law moved at an early age to London, where, along with enjoying a markedly sybaritic existence, he seems to have given some attention to matters of banking and finance. As for market psychology, having the bears on the run helps jolt sentiment past optimism to exuberance and then Euphoria. The crash of 1929 ushered in the dismal years of the Great Depression, for which, indeed, the stock-market debacle should rightly 88 be held sharply responsible.
Those who had lost their minds as well as their money and made the speculation spared themselves all censure. It was not, however, in stock-market offerings or in real estate or, as one might have expected, in the superb Dutch paintings; the speculation was in tulip bulbs, and it has come down over the last 350 years with a name of its own-the Tulipomania. But here, as in Paris, it was not a time for questions. The least important questions are the ones most emphasized: What triggered the crash? Galbraith chooses a number of examples to demonstrate this behaviour such as The South Sea Bubble, the Banque Royal collapse in France and tulip speculation in Holland. A Short History of Financial Euphoria There are two reasons for this. The entire world suffers from a widening gulf between inflating asset prices and mounting economic vulnerabilities. John Kenneth Galbraith ward wave, stepped in to counter the threat.
The Constitution for-· bade the federal government and, needless to say, also the states to issue paper money. For this the bulbs were now bought, and by the mid-1630s the increase seemed to be without limit. As I told in the Foreword to the earlier edition, it concerns matters that have interested me for a third of a century and more. That, in effect, was to normalize it. Regulation outlawing financial incredulity or mass euphoria is not a practical possibility.
The upward movement confirms the commitment to personal and group wisdom. A golden bait hung temptingly out before the people, and one after the other, they rushed to the tulip-marts, like flies around a honey-pot. As described by the author, all financial innovation has involved debt creation leveraged against more limited assets. In the 1920s, as we shall see, great holding companies were created. I dare say the Gadarene Swine in the gospel were similarly intent on making a fast shekel as they leapt to perdition over the cliff. There was no mention of the circumstances that induced it.
The Southern colonies-Maryland, Virginia, and Carolina as it then was calledissued notes against the security of tobacco and greatly deplored any demand for gold or silver as a means of payment, on occasion proscribing their use. My accountant husband urged me to read it after I failed to read another book of Galbraith's--The Great Crash, I believe it was. A man is considered as accomplished if his pockets are filled with money. All pages are intact, and the cover is intact. Meanwhile there had been an experience of leverage that would have seemed formidable to T. The speculative period is prolonged by the fact that those participating psychologically must justify what has made them rich and has given them a feeling of being successful and intelligent persons. This inherent instability of the system is both its strength and its weakness.
Wiggin, also a large operator and heavily short in the stock of his own bank, was denied his pension. We are more fortunate in the next of the classic episodes; it is dominated by one of the A Short History of Flnanela. The bonds so issued, it might be added, carried high interest rates that were meant to compensate for the risk incurred. All pages are intact, and the cover is intact. Insanity born of optimism and selfserving illusion was the tale of two cities. Milken fell afoul of the securities-regulation laws, and Drexel Burnham, after rewarding its executives ·for earlier achievement, suffered a spectacular descent into bankruptcy. That speculation and its aftermath are recurrent and inherent, unfortunate characteristics of markets extending over the centuries, went mostly unmentioned.
The spine may show signs of wear. Clearly, given the nature of the euphoric mood and the vested interest therein, the critic must wait until after the crash for any approval, not to say applause. 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. But now there was also a new source of financing. His books on economic topics were bestsellers in the 1950s and 1960s. Spine creases, wear to binding and pages from reading.