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A Short History of Financial Euphoria

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A Short History of Financial Euphoria

Penguin,

15 min read
10 take-aways
Audio & text

What's inside?

Galbraith’s financial essay warns that devastating fiscal collapse is inevitable in the free enterprise system.

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Editorial Rating

10

Qualities

  • Innovative
  • Applicable

Recommendation

John Kenneth Galbraith’s short, literary book on financial speculation and the inevitability of subsequent economic catastrophe contends that devastating financial collapse is built into the free-enterprise system – an idea as intriguing today as it was when this book debuted in the mid-1990s. The late famous economist ended this treatise with a chilling question: “When will come the next great speculative episode and in what venue will it recur?” Everyone now knows the answer to that question all too well. Alarmingly, according to Galbraith, the travails that capitalist economies are now grimly experiencing will recur over and over. getAbstract suggests that anyone who wants to understand the kinks in the system – and human nature – that will continue to lead to hugely devastating, economic train wrecks should read Galbraith’s book.

Summary

The Inevitability of Financial Disaster

Financial collapse is perhaps the most presumptive component of the free-enterprise (previously termed “capitalist”) system. Such economic breakdowns are certain to recur for clear reasons that never change. People and institutions want a quick way to build wealth. Those who have wealth, or easily accumulate it, consider themselves – and promote themselves as – financially astute and wise. Those who lack wealth assume that such self-aggrandizing assessments are valid. This sets the scene and establishes the characters for inglorious events to come.

How the drama plays out never varies. In concert, enlightened fiscal savants begin a bidding war for some asset, often securities or land. Prices for that asset naturally skyrocket, thus providing tangible evidence of the speculators’ financial perspicacity. The speculation mushrooms with heady momentum. Financial soothsayers portend that a “new price-enhancing circumstance is in control” so the asset’s value will miraculously always keep increasing.

Investors make a big financial and psychological investment in this “speculative euphoria.” How could they not? Many of them benefit...

About the Author

World-famous economist John Kenneth Galbraith taught at Harvard and Princeton, and wrote more than 40 books. He served as U.S. Ambassador to India for President John F. Kennedy. Galbraith died in 2006.

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