Speculation throughout history

tl;dr:?speculation today is pretty much the same as it has always been. That’s the lesson of ‘Devil Take the Hindmost.”

I started reading?Devil Take the Hindmost: A history of financial speculation?and within minutes, I was post-it noting the pages.

Though the book was written in 1999 and therefore misses a lot of the more recent speculative excitement, it covers an extensive swath of history going all the way back to the Roman forum to “Tulip Mania” of the 1600s Netherlands, which?apparently never really happened?since the ‘smart money’ stayed out of it.

I’m only through Chapter 2, so I suspect there will be more to follow on this topic, but a few tidbits that jumped out at me include (with some commentary)

• the difference between ‘enterprise’ and ‘speculation.’ According to John Maynard Keynes, enterprise is “the activity of forecasting the prospective yield of asset over their whole life.” Speculation, he called ‘the activity of forecasting the psychology of the market.’
• Found this interesting because we refer to large, established companies as ‘enterprises’ which explains why they are all interested in predictabilty.
• “Speculation is active” while “investment is passive” and thus, foregoing current income for a prospective capital gain is deemed speculative.
• This made sense at a high level, but an investment can also be about foregoing current income…unless the mere sacrifice of income makes something speculative.
• Every transaction which was under the control of the Roman government was farmed out to contractors and, according to?Polybius?a Greek chronicler of the times, ‘there is scarcely a soul, one might say, who does not have some interest in these contracts and the profits which are derived from them.”
• Interesting how the Romans minimized bureaucracy (at least at this stage)
• Europe’s first central bank, the?Wisselbank?in Amsterdam, paid no interest on deposits, issued notes only against its gold holdings, and made no loans. Yet its existence allowed Dutch merchants across the globe to settle their accounts bills in a universally accepted currency.”
• Call it wishful thinking, but this sounds a hell of a lot like Bitcoin.
• The chronicler,?Joseph Penso de la Vega?wrote in?Confusion de Confusiones?that “the expectation of an event creates a much deeper impression upon the exchange than the event itself.”
• Probably no surprise here. There was another great quote of a French phrase “buy at the cannon fire, sell at the trumpets”.
• James Buchan?observed that “the great stock market bull seeks to condense the future into a few days, to discount the long march of history, and capture the present value of all the future.”
• I have often been guilty of this.
• In London in 1690s, “the current ideas of the ‘stock market’ took hold while a few years earlier, the workd ‘broker’ had referred simply to a procurer or pimp and others such stockjobber, director, subscription, underwriting, puts, and rfunds (i.e. call options) were unknown. All of a sudden, these words compreise a financial argot that spouted from every mouth”
• This is what I expect to happen with DeFi (and which is already happening to some extent)…an entirely new vocabulary is getting established in front of our eyes (e.g. Automatic Market Maker thanks to Uniswap)

I can’t remember where I got the recommendation for this book, but I’m glad I picked it up. Given the pace of technology and the speed of communication, I expect that we’ll see more and faster cycles of speculative frenzy in the years to come.

Then, it comes down to pattern recognition (if you’re going to participate at all or just watch), so seeing a broad coverage of the concept in multiple instances (and there are more like 1929, Japan in the 1980s and plenty in between), may be helpful.