A Short History of Financial Euphoria by John Kenneth Galbraith
I am always struck by how little importance we (myself included) tend to assign to the lessons of history. Even more striking, if we tend to look back, we look back 5 years, maybe 10, maybe 20 years and then stop. It’s as if anything beyond 2 decades has little relevance, if any. This is especially true of the financial world where there is an information overload on a daily basis and looking back more than 1 week seems like a demanding task. However, if we do bother to look far back, even 50 or 100 years, then history has some very useful insights, consistent patterns and lessons that we would all be better off knowing.
I stumbled on a book last week (thanks to a colleague who happened to have it and he highly recommended it) and I could not put it down once I started it! A Short History of Financial Euphoria by John Kenneth Galbraith is a very elegantly written book where the author explores the numerous crises spanning human history starting with the Tulip mania in 1630 to the South Sea crisis in 1720 and all the way to the big financial crashes of the 1900s and everything in between. He is not trying to help you spot the next bubble but more importantly he provides a compelling lens through which most of these ‘crises’ share very similar characteristics, behaviors and rationale. It did not matter whether it was the 1600s or the 21st century – human nature has stayed fairly predictable.
A great read and here are two of my favorite quotes: First - “Let the following be one of the unfailing rules going forward. There is the possibility, even the likelihood, of self-approving and extravagantly error-prone behavior on the part of those closely associated with money. When there is a claim of unique opportunity based on special foresight, all sensible people should circle the wagons. The time has come for caution. . . Maybe there is treasure on the floor of the Red Sea. A rich history provides proof, however, that more often than not, there is only delusion and self-delusion.” Second – “No one knows when there will be the next crash but one thing is certain – there will be another episode and yet many more beyond. Thus it has been true for centuries, thus in the long future it will also be”.