Devil Take the Hindmost: A History of Financial Speculation

Amazon.com
"The longest bull market in history" is a term that gets used a lot these days. Since 1990, the Dow Jones Industrial Average has risen some 8,000 points, from around 2,700 in January 1990 to nearly 11,000 today--a boom by anyone's standards, including Edward Chancellor's. In Devil Take the Hindmost, Chancellor takes an entertaining, albeit sobering, look at the history of speculative manias and the mass delusion that surrounds them.

Beginning with the "tulipomania" that gripped Holland in the 1630s, Chancellor chronicles the formations and irrational euphoria that can inflate markets, from shares of South Sea stock in England in the 1720s to real estate in Japan in the late 1980s. He characterizes the speculative spirit as one that loves freedom, detests cant, and abhors restrictions. From the tulip Colleges of the seventeenth century to the Internet investment clubs of the late twentieth century, speculation has established itself as the most demotic of economic activities. Although profoundly secular, speculation is not simply about greed. The essence of speculation remains a Utopian yearning for freedom and equality which counterbalances the drab rationalistic materialism of the modern economic system with its inevitable inequalities of wealth. But it's precisely such inevitability that always seems to win out, when "sharply rising prices followed by sudden panic without cause" bring speculative excess to an abrupt end.

Chancellor makes Devil Take the Hindmost especially relevant to today's U.S. investors by using his analysis of past speculative manias as a lens through which to view the current bull-market binge. No matter what his or her current investment outlook is--bull or bear--anyone with capital to invest would do well to spend a thoughtful weekend with this book. Highly recommended. --Harry C. Edwards


From Library Journal
In an era of rampant speculation and questionable investor habits, it is a pleasure to read an insightful, well-focused analysis of the events that have dominated social and economic history since at least the second century B.C.E. Starting with the speculative frenzy that gripped ancient Rome, British business journalist Chancellor goes on to provide keen insight into a wide variety of events, including the emergence of stock exchanges from the great fairs of northern Europe, the tulip mania that gripped the Dutch Republic in the 1630s, the insanity of the Mississippi and South Sea bubbles, the robber barons and their impact during the Gilded Age, the events leading to the Crash of 1929, the Japanese bubble economy of the 1980s, the Mexican crisis of 1994, the Asian market crisis of 1997, and the speculative manias that have accompanied the emergence of new technologies, including railroads, the telegraph, automobiles, radio, and the Internet. A well-rounded presentation that should be included in all public and academic libraries.ANorman B. Hutcherson, Beale Memorial Lib., Bakersfield, CA Copyright 1999 Reed Business Information, Inc.


The New York Times Book Review, Adam Smith
He seems to have read everything.

FROM THE PUBLISHER

A lively and authoritative look at speculation from early modern times to the present.

Focusing on speculation as it developed in the world's leading stock markets, Edward Chancellor's story starts with the tulipomania in seventeenth-century Holland, then moves to Britain with accounts of speculative manias such as the South Sea Bubble and the Railway Mania. From the mid-nineteenth century, the narrative turns to the United States, with chapters on the Gilded Age, the Roaring Twenties, and the revival of speculation since the early 1970s, then portrays the disastrous Bubble Economy of Japan in the 1980s. Chancellor shows that the impulses that have shaped speculative behavior are at odds with the orthodox theory of efficient markets. His comprehensive history is interspersed with trenchant commentary on speculation in the 1990s, including such current issues as emerging markets, Internet and foreign-currency speculation, rogue traders, the great U.S. bull market, and our current financial predicament.

FROM THE CRITICS

John Kenneth Galbraith

Anyone contemplating a stock market venture and certainly anyone now involved should read this book. It is an admirably researched and very well-written account to speculative insantiy from the earliest times to, let on one doubt, the present.
&#; The Economist

Money Magazine

From ancient Rome through today's Internet-stock craze, when it comes to money and finance, the human emotions of greed and hope regularly override cool logic.

Lori Wiener

Financial journalist Chancellor takes a fascinating and often amusing look at the history of speculative investment. From the "tulip mania" of seventeenth-century Holland (when certain citizens gladly paid five times their annual earnings for a single bulb) to the Crash of '29, the leveraged buyout boom and the Fuji Bank scandal of 1991, the author creates very readable accounts of events that might otherwise appear about as interesting as flypaper. Among the most interesting of Chancellor's suggestions is the notion that speculative investment (defined as investment designed to yield a fortune with minimal outlay) is based in crowd hysteria, with individual investors, as well as the market itself, regularly succumbing to vagaries most of our modern world understands as manic depression. Anecdotal as well as factual, Devil Take The Hindmost (the title comes from the infamous "South Sea" investment scam perpetuated in 1720 Britain) is surprisingly quick and engaging. Its appeal will likely extend to the historian, the sociologist and the investor in equal measure.

Barton M. Biggs

The best, most insightful study of speculation and bubbles I have read. It should be required reading for every investor.
&#; The Economist

Gary Krist - Salon

"I daily hear such reports of advantages to be gaind by one project or other in the Stocks, that my Spirit is Up with double Zeal, in the desire of our trying to enrich ourselves."

Sound familiar? It should, given the zealous high spirits of those enriched by "the Stocks" of Wall Street over the past few years. But the author of the above sentiment was Alexander Pope, the British poet, and he was writing about a different bull market -- that of South Sea Company stock in 1720. As Edward Chancellor points out in his fascinating and frightening new book, Devil Take the Hindmost, all of London was caught up in the mania for South Sea stock, which was appreciating at a rate even early holders of Amazon.com would envy. Pope's contemporary Jonathan Swift probably described the era best: "I have enquired of some that have come from London, what is the religion there? they tell me it is South Sea stock."

Widespread market obsession, though, is only one of many ominous parallels Chancellor finds between the current boom and those of the past. After first tracing the history of financial speculation back as far as ancient Rome (unsavory operators sold shares on the Forum, near the Temple of Castor), he outlines the stunningly similar progress of various "speculative bubbles" throughout history -- the Tulip Mania of 1637, the South-Sea Bubble of 1720, the Railway Mania of 1845, the bull markets of the 1920s and the 1980s, and the Japanese Bubble Economy of the late 1980s. In each case, the signs of excess and imminent disaster should have been obvious to all but were lost in the euphoria of the quick and easy buck (or pound or yen). Why? Because each time the public allowed itself to believe what, according to Sir John Templeton, are the four most expensive words in the English language: This Time It's Different.

Arguing that speculative manias partake of a good bit of irrationality, Chancellor rebuts proponents of the so-called Efficient Market Hypothesis, who believe that stock prices by their very nature reflect intrinsic value (in other words, that stock in DutchTulip.com really is worth 4,000 times current earnings, because DutchTulip.com is the future). This faith in the surpassing wisdom of the markets, he contends, is what allows speculative bubbles to develop, aided by the ever more arcane and dangerous financial instruments that thrive in an era of laissez-faire economics.

Casting a critical eye on the current environment (where even George Soros complains that he doesn't understand how certain derivatives function), Chancellor implies that those who believe the current market to be rationally priced may be living in a dream world. "As an anarchic force, speculation invites government restrictions," he concludes, "yet it is only a matter of time before it slips its chains and runs amok."

One warning: Devil Take the Hindmost, while timely and enlightening, is not an easy read. Without an MBA and experience on Wall Street, you may find much of Chancellor's analysis heavy sledding. (If you do, try John Kenneth Galbraith's briefer, more accessible -- and delightfully condescending -- A Short History of Financial Euphoria.) But you don't have to know the difference between a hedge and a hedge fund to understand Chancellor's basic premise. And if you're like me, you'll have two overwhelming reactions: first, to marvel that the more things change, the more they stay the same; and second, to conclude that it may be time to redeem those mutual funds and stick the proceeds under a nice, safe mattress. Read all 11 "From The Critics" >

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