In this short (110 page) book, Galbraith gleefully highlights some of the dismal speculative bubbles and financial crises of the modern world, from 17th century Dutch tulip-mania to the South Sea Bubble, and from the grand crash of 1929 to the crash of 1987. (In discussing the earlier catastrophes, he also gives a nod to another truly impressive work, Mackay’s Depression-era tome Extraordinary Popular Delusions and the Madness of Crowds.)

The cycle of irrational exuberance, foolhardy investment, and inevitable crash occurs with sickening regularity, in a true-life admonition to those whom Santayana accused of not having learned from the past. Galbraith notes that foolish investment schemes which go south have been “explained” not in terms of the unfortunate conjunction of human greed and wishful thinking, but that economists have rather called in mean ol’ Mr. Gravity (what goes up must come down) as the culprit:

From the neatly timed sequence of boom and bust in the last century came, in later years, another design to conceal the euphoric episode. That, in effect, was to normalize it. Boom and bust were said to be predictable manifestations of the business cycle. Mania here might be, as Joseph Schumpeter [an economist] thus characterized it, but mania was a detail in a larger process, and the benign role of the ensuing contraction and depression was to restore normal sanity and extrude the poison, a some other scholars put it, from the system. University courses on business cycles now accepted as routine the alternation between high, even extravagant, expectations and low.

Well, I suppose it’s thinking like this that keeps economists gainfully employed while the rest of us are cutting checks to AIG.

This is an entertaining look at the irrationalities of financial ventures over time, and calls out the lie that people who make money in the market are necessarily smarter than you or I, or that people learn from past mistakes:

Let it be emphasized once more, and especially to anyone inclined to a personally rewarding skepticism in these matters: for practical purposes, the financial memory should be assumed to last, at a maximum, no more than 20 years. This is normally the time it takes for the recollection of one disaster to be erased and for some variant on previous dementia to come forward to capture the financial mind. It is also the time generally required for a new generation to enter the scene, impressed, as had been its predecessors, with its own innovative genius.

In this, Galbraith just about predicts the current collapse, following upon the 1987 crash (but without foreseeing the intervening dot-com bubble). A Brief History of Financial Euphoria is a concise and witty overview of the pitfalls of the pursuit of the easy buck.

Pros: timeless; good scornful tone;
Cons: not very insightful; basic descriptive accounts; lack of treatment on systematic exploitation (rather than pure speculation) ( )