A Short History of Financial Euphoria (Whittle) by John Kenneth Galbraith

By John Kenneth Galbraith

With all of the monetary information and event of the wizards on Wall highway and somewhere else, how is it that the industry nonetheless is going growth and bust? How can humans be so keen to get stuck up within the mania of hypothesis whilst background tells us cave in is sort of absolute to persist with? during this primer, the well known economist John Kenneth Galbraith experiences the main speculative episodes of the final 3 centuries - from the seventeenth century tulip craze to the calamitous junk-bond follies of the Nineteen Eighties. His insights supply very important classes on speculative economics, and exhibit conclusively that cash and intelligence aren't inevitably associated.

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There will be talk of regulation and reform. What will not be discussed is the speculation itself or the aberrant optimism that lay behind it. Nothing is more remarkable than this: in the aftermath of speculation, the reality will be all but ignored. A Short History of Financial Euphoria There are two reasons for this. In the first place, many people and institutions have been involved, and whereas it is acceptable to attribute error, gullibility, and excess to a single individual or even to a particular corporation, it is not deemed fitting to attribute them to a whole community, and certainly not to the whole financial community.

Those who had lost their minds as well as their money and made the speculation spared themselves all censure. c H A p T E R 4 THE CLASSIC CASES, II: THE BUB BLE As the great speculation was coming to its unpredicte~ but wholly predictable climax in Paris in 1720, so was another, this one in London. Insanity born of optimism and selfserving illusion was the tale of two cities. As might be expected, both the British players and the event itself lacked the French style. It was, by comparison, a rather ordinary, if exceptionally intense, boom and collapse in securities prices augmented by a comprehensive exercise in official bribery, corruption, and chicane.

More stock was then issued to satisfy more of the intense demand, the latter having the effect of lifting both the old and the new issues to ever more extravagant heights. All the notes in this highly literal circulation were, it was presumed, backed by coin in the Banque Royale, but the amount of the coin that so sustained the notes was soon minuscule in relation to the volume of paper. Here was leverage in a particularly wondrous form. In 1720, the end came. The leverage went sharply into reverse, as was to be the experience in a hundred such occurrences, great and small, in the next 250 years.

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