Name: A short history of financial euphoria
ISBN: 9780140238563

A short history of financial euphoria

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.

What Hacker News says

kriroJul 2026

I think it's a good time to re-read "A Short History of Financial Euphoria". A classic I always recommend :)

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dpflanJun 2026

Along similar lines, the economist John Kenneth Galbraith has a book on financial bubbles and irrational crowd mentalities in financial market over the centuries: A Short History of Financial Euphoria [1]. Short, approachable, and interesting.

[1] https://www.goodreads.com/en/book/show/270746.A_Short_Histor...

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lamontcgMar 2023

I'd recommend the books by Galbraith -- Money: Whence It Came, Where It Went, The Great Crash 1929, and A Short History of Financial Euphoria.

That is some pretty timeless background.

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em500Nov 2022

Btw, a great, well known quote from John Kenneth Galbraith (from A Short History of Financial Euphoria) is:

"The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version. All financial innovation involves in one form or another, the creation of debt secured in greater or lesser adequacy by real assets."

In the 2008 financial crisis, some have paraphrased this as "All financial innovation is leverage dressed up as something different."

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whiddershinsAug 2022

I don't agree with this characterization. I would suggest 'A Short History of Financial Euphoria' by Kenneth Galbraith. His thesis is bubbles happen like clockwork. I agree with you that they do vary in magnitude.

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cs702Jan 2022

If you think we're in a bubble and you think you might be able to exit it at just the right time, I highly recommend you read "A Short History of Financial Euphoria" by John Kenneth Galbraith.[a]

Here's one of my favorite passages from the book:

> There are those who are persuaded that some new price-enhancing circumstance is in control, and they expect the market to stay up and go up, perhaps indefinitely. It is adjusting to a new situation, a new world of greatly, even infinitely increasing returns and resulting values. Then there are those, superficially more astute and generally fewer in number, who perceive or believe themselves to perceive the speculative mood of the moment. They are in to ride the upward wave; their particular genius, they are convinced, will allow them to get out before the speculation runs its course. They will get the maximum reward from the increase as it continues; they will be out before the eventual fall.

> For built into this situation is the eventual and inevitable fall. Built in also is the circumstance that it cannot come gently or gradually. When it comes, it bears the grim face of disaster. That is because both of the groups of participants in the speculative situation are programmed for sudden efforts at escape. Something, it matters little what -- although it will always be much debated -- triggers the ultimate reversal. Those who had been riding the upward wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell. Thus the collapse. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang. There will be occasion to see the operation of this rule frequently repeated.

> Although only a few observers have noted the vested interest in error that accompanies speculative euphoria, it is, nonetheless, an extremely plausible phenomenon. Those involved with the speculation are experiencing an increase in wealth -- getting rich or being further enriched. No one wishes to believe that this is fortuitous or undeserved; all wish to think that it is the result of their own superior insight or intuition. The very increase in values thus captures the thoughts and minds of those being rewarded. Speculation buys up, in a very practical way, the intelligence of those involved.

> This is particularly true of the first group noted above -- those who are convinced that values are going up permanently and indefinitely. But the errors of vanity of those who think they will beat the speculative game are also thus reinforced. As long as they are in, they have a strong pecuniary commitment to belief in the unique personal intelligence that tells them there will be yet more. In the last century, one of the most astute observers of the euphoric episodes common to those years was Walter Bagehot, financial writer and early editor of The Economist. To him we are indebted for the observation that "all people are most credulous when they are most happy."

Jeremy Grantham, the author of the OP, is the kind of person who never, ever wants to be in the first nor the second group.

[a] https://www.amazon.com/History-Financial-Euphoria-Penguin-Bu...

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