Devil Take the Hindmost: A History of Financial Speculation

The heading for one chapter of Edward Chancellor's fine book quotes the investor Sir John Templeton: "The four most expensive words in the English language are 'this time it's different.'" Templeton's words sum up the most important lesson to be learned from this outstanding history of speculation, which focuses in particular on those manic episodes called bubbles, in which the prices of assets are driven to levels far above those justified by the assets' underlying fundamentals.
Chancellor's account, while not a comprehensive study of speculation, thoroughly examines major speculative periods from the tulip mania of the early 17th century, to the Japanese "bubble economy" of the 1980's. Three repeating motifs characterize these speculative episodes. First is the irrationality of financial markets, especially the way in which people of all eras are susceptible to the euphoria which inflates a bubble. Second is the constant recurrence of manipulation of markets by the greedy and unethical, the likes of Jay Gould and his accociates.
The third and most important theme is the existence of parallels between past speculative bubbles and conditions in our own time. Chancellor convincingly argues, for example, that the internet mania of today is similar in many ways to the British railway bubble of the 1840's.
I strongly recommend this book to anyone with an interest in financial markets or their influence on history. The only, slight caveat I would offer is that it helps a reader to have at least some knowledge of the language of financial markets, as Chancellor at times tosses terminology at readers without offering a clear definition.

As you contemplate the rise and rise of China's planned economy, consider this passage from an anonymous bank official:

"We intended first to boost the stock and property markets. Supported by this safety net - rising markets - export-oriented industries were supposed to reshape themselves so they could adapt to a domestic-led economy. This step was then supposed to bring about an enormous growth of assets over every economic segment, followed by an increase of investment in plant and equipment. In the end, loosened monetary policy would boost real economic growth."

Sounds about right, doesn't it? There's just one catch....

The official being quoted is not a Chinese central banker circa 2011. He is a BOJ (Bank of Japan) official circa 1988.
And we know what came soon after for the Land of the Rising Sun - a toppling weight of speculative mania collapse, coupled with a truly spectacular misallocation of resources and the dead weight of "zombie banks," that hobbled Japan's economy for decades running.

The above quotation is one of the many cited in the excellent "Devil Take the Hindmost: A History of Financial Speculation" by Edward Chancellor.

Having first read "Devil Take" many years ago, but never having reviewed it, we were inspired by recent events in China to pull it down from the bookshelf and reexamine the chapter on Japan.

The similarities - China now, Japan then - are notable.

Japan in the late 1980s, like China now, was a booming command and control economy. Officials at the all powerful Ministry of Trade and Industry (MITI) and Ministry of Finance, via the power of back channels, chose how to steer "Japan Inc." at will.

Further evoking China, Chancellor observed of the Japan bubble that "speculative mania is often a symptom of hubris," with great manias tending to occur "when the economic balance of power is shifting from one nation to another."

As Chancellor describes the late 1980s scene,

"America was on the run. While Japan had its trade surpluses, America faced growing trade deficits. The Reagan administration also produced enormous budget deficits that were only sustained by the willingness of Japanese investors to sink their country's trade surplus into U.S. Treasury bonds..."

As Yogi Berra might quip, re Japan vs. China, it's "Deja Vu All Over Again."

Or perhaps "Nobody invests there anymore, it's too overbought."

Those timely parallels aside, "Devil Take" is an engrossing book that traces the roots of financial speculation all the way back to Roman times. Thanks to Chancellor we learn the Latin meaning of the word speculator: It originally applied to sentries, whose job it was to "look out" (speculare) for trouble. Ancient Rome's financial players, on the other hand, were known as "quaestors," or seekers.

And the quaestors had much to seek. Chancellor reveals that two millennia ago there were joint stock companies with thousands of employees (slaves), public accounts, and even joint shareholder meetings with differing classes of company shares. One wonders if there could have been rough-hewn J.P. Morgans and Jesse Livermores of the Roman age.

Human nature was certainly the same. As Petronius Arbiter wrote of the Rebublic's final years,

"...filthy usury and the handling of money had caught the common people in a double whirlpool, and destroyed them... the madness spread through their limbs, and trouble bayed and hounded them down like some disease sown in the dumb flesh."

Thus beginning with ancient Rome and the origins of financial speculation, Chancellor then takes an erudite journey through the forgotten touchpoints of speculative mania history - from "stockjobbing" in the London boom of the 1690s, to John Law and the South-Sea Mississippi Scheme, to the "Fool's Gold" of the 1820s and the Railway Mania of 1845.

The book then covers speculation in the Gilded Age, and rounds out the 20th century with a look at the crash of `29 and the go-go 1980s (via cowboy capitalism and, last but not least, Japan).

Needless to say, pollyanna permabulls will not much like this book. But for those with a natural contrarian streak and an acquired taste for the "dark side" (i.e. going short), "Devil Take the Hindmost" is a delicious and informative romp.

The lessons of speculative mania are clearly a warning to unrestrained bulls, but they hold an important message for bears too: Manias can be quite dangerous, fatal even, for those who stand in their path without yielding.

The persistently recurring nature of the episodes Chancellor describes - and the ability of froth to reach incredible heights - is great testimony to the old J.M. Keynes warning: "The market can remain irrational longer than you can remain solvent."

Chancellor's book is a highly entertaining history of market speculation taking in everything from the Tulip Mania of 17th century Holland and the English South Sea Company bubble to Japan in the `80s, the Savings and Loan Rip Off, Michael Milken's Junk Bonds, the Long Term Capital Management fiasco and the Internet craze of the late 1990's. Chancellor even covers the 90's art market.
One constant stands out about market piracy: what is new is old - only the names and games have changed. Markets have always been manipulated and always will be. The reforms that follow in the wake of each bubble plant the seeds for the next. Often because the legislators who enact the reforms are beholden to those positioned to benefit from the loopholes.
There are several phrases that seem to pop up with every bubble:
"This time it's different."
"It's too big to fail."
"The business cycle is no more," or some nonsense about reaching a plateau of permanent prosperity.
Reading this book will make you think twice about investing in the market.
It'll make you doubt the foundation of the efficient market hypothesis.
It'll show how often the experts are wrong.
It'll show how often Nobel Laureates in Economics turn out to be fools.
It will make you think three times about investing in Japan.
Four times about investing in Latin America.
And you'll run away screaming from derivatives of any stripe.
In fact, one wonders why the whole shooting match hasn't imploded yet, ala Baring's Bank or LTCM.
Devil Take the Hindmost is a fun read. More important, the next time a Mania strikes - and it will - this book and a general understanding of the history of speculation just might just save you from rushing over the cliff with all the other lemmings.

This is the single best guide to financial history that's ever been published. And as you read through it, you will recognize trends and forces that are acting today which are not so different from what has been going on in markets for centuries. I read it every couple years and there's always something pertinent to what's happening. And today -- with Trump touting a new all time high in the markets -- I can't help but stop on these lines (quoting Daniel Defoe from the 1600s): "On numerous occasions we find politicians stimulating speculative manias for their own gain. . . . 'When Statesmen turn jobbers, the state may be jobb’d.'” Indeed.

I'm fairly shocked by the extensive number of 5 star ratings for this book. This book is quite painful to read, but not because the stories are tragic or the warnings frightening. Though the messages contained within are important, the author rambles incoherently and the extensive use of footnotes is overly distracting. The footnotes for many pages are longer than the primary text and should have been incorporated into the main story line. Chancellor is in need of an editor with an iron fist toward readability.

+++++

This extremely well researched book, by historian Edward Chancellor, is about the history of financial or stock market speculation. The line distinguishing investment, financial speculation, and even gambling is not absolutely clear:

"[S]peculation is the name given to a failed investment and...investment is the name given to a successful speculation...The psychologies of speculation and gambling are almost indistinguishable: both are dangerously addictive habits which involve an appeal to fortune, and often [are] accompanied by delusional behavior and are dependent on success for the control of emotions."

The title of this book "Devil take the Hindmost" comes from a phrase in the 1720 writing of an "anonymous pamphleteer." This phrase means "Let every person follow self-interest, leaving others to fare as they may."

Chancellor takes us through significant periods of stock market manias or "speculative manias or bubbles." Some examples include:

(1) the Dutch Tulip Mania of 1637
(2) the British South Sea Company Bubble of 1720
(3) the U.S. bull market of the 1920s
(4) the U.S. bull market of the 1980s
(5) the Japanese Bubble Economy of the late 1980s.

All of the above events have one thing in common: the mania is always followed by a collapse, or more eloquently, the bubble eventually bursts. But as you read this book, you will discover that investors and speculators don't seem to learn from the lessons of the past. Why? Because as Sir John Templeton stated, there is this manic belief that "this time it's different."

Throughout this book, you'll come across words such as these:

mania or euphoria, bubble, crash or collapse, suicide, lotteries, gambling, speculation, irrationality, political influence, corruption, fraud, bankruptcies, bank failures, greed, profit, wealth, power, illness, anxiety, nervous breakdown, insider trading, capitalists, materialism, risk, murder, debt, and market manipulation.

Chancellor also provides other interesting historical information in his narrative besides just historical information about speculation. For example, he tells us the true story of where the stock market terms "bull" and "bear" came from and what Mark Twain thought about investing and speculation.

Contrary to belief, this book is not biased. In the epilogue of his book, Chancellor tells us the benefits that come from speculation. However, from reading the initial chapters of this book, it seems to me that these benefits come at a very high human cost.

The only problem I had with this book is the plethora of footnotes. They occur on every second page or so. While some of the information in these were very interesting, I found that I got tired of being continually distracted by these footnotes and so I eventually gave up reading them.

Although not completely necessary, it would be helpful to know some basics about the stock market and investment when reading this book. Chancellor does a good job explaining most things but he also assumes that the reader knows some basics.

Finally, this is a unique book that thoroughly explains the history of financial speculation. Whether you're an investor or not, you'll learn a lot especially about human nature.

RECOMENDATION: Invest in this book!!

(first published 1999; preface; 9 chapters; epilogue; notes; references, acknowledgements; index)

+++++

Edward Chancellor provides a well researched history of market bubbles up to 1998 but then proceeds to draw a spurious conclusion that speculators are the problem in financial markets.
His own analysis shows clearly that dishonest politicians, political manipulation, insider trading and even the involvement of organized crime are responsible for the growth and life of investment bubbles and yet in the concluding paragraph, he proceeds to draw the conclusion that speculators and the tools they use need to be controlled. In the last chapter the author quotes George Soros heavily calling for greater regulation of speculators while in fact, Soros is one of the greatest all time single biggest home run hitters with his speculation in the British Sterling in 1992 and who continues to be a large speculator in the energy markets backing cap and trade as he invests hugely in energy development in South America. A far more realistic conclusion that might be drawn from the involvement of speculators in the markets is their important contribution to the eventual exposure of the dishonesty in the markets in question and in bringing about the fall of those truly responsible. Read the book for the well researched history, do not bother with the conclusions.

Absolutely the single best history of financial speculation. Chancellor seems to have assimilated just about everything one could on all the major speculative episodes, from ancient origins through the 1990s.

There's not much else to say. If you're an investor, this is a must-read history of how things can go horribly wrong in financial markets.

In fact, with U.S. equities bumping against all-time high valuations (in mid-2018), this is the perfect moment to take your time and read through this book. It'll show you all the ways you might be getting swept up in speculative excess, of which you might not be aware, even if you're invested in the greatest businesses that have ever existed.

[[ASIN:0991513053 World Dominating Dividend Growers: Income Streams that Never Go Down]]

This is not just a history of financial speculation. This is really a history of mankind, of greed, of all the evil that we have repeated again and again through history. The author finished writing this book in Dec 98. Theoretically, if more people had known and read this book, much fewer would got "drown" in the internet bubble. However, when the Greater Fool theory was in full throttle, as prescribed by this book, that made no difference.

Basically this book had covered all the financial catastrophes of the past 5 centuries: Tulipomania, South Sea Bubble, Fool's Gold, Railway mania, Great Depression, Japanese Bubble Economy blah blah blah. You name it. The most valuable thing being that the author had not just given an exhaustive account of what happened, but some reasoning why things repeated themselves, and how. Say, the government officials were corrupted, there came a so called technology innovation or a new market (the terms "New Era/Never coming back of the business cycle" were also there in 1929), the Greater Fool Theory in full gear, all the simple things you can tell from hindsight.

As a CFA charterholder, I strongly recommend AIMR to put this book into the required reading list to warn its members of the limitation of the financial techniques/theories/calculations we try to preach. Anyway, a must read for anyone, especially serious players!

I will admit, from the beginning, that I am bearish about the current stock market and tend to think that we are in the midst of a bubble which could burst any day now. Nevertheless, while Edward Chancellor's book reaffirms many of my beliefs, it will prove to be equally interesting reading for those who are wholly optimistic about the current state of the stock market.
This book provides a comprehensive and fascinating history of stock market speculation from its earliest days. Prior to reading this book, I had a vague knowledge of events such as the "Tulip Bubble" and the "South Sea Bubble" but Chancellor discusses these in fascinating detail, consistently using modern techniques of economic analysis which the reader can then apply to draw their own conclusions about today's financial status quo. Chancellor looks at arguments raised on all sides of academia about the role of stock market speculation to overall economic well-being. This is not, by any stretch of the imagination, a book which aims to promote one single view - while trying to persuade readers gently that we currently find ourselves in a period of financial excess, the author leaves readers to make up their own minds.
Some people may find some of the author's discussions slightly too technical and I did approach this book from a background of fairly deep knowledge of economic theory and the financial world. Nevertheless, even for the novice, certain technical arguments will not completely overwhelm the interesting subject matter of this book.
I would consider this book essential reading for anyone who is involved in the stock market today - not as a warning of things to come but only to reinforce the notion that those who do not understand history are doomed to repeat it.