A Short History of Financial Euphoria by John Kenneth Galbraith

Galbraith, John. A short history of financial euphoria, Whittle books (Viking), Viking Penguin, New York, 1993. Hardcover, 113 pages.

Rating: 7/10

Following a series of extraordinarily bad fiction books, it was a delight to turn to Galbraith, whom I had not read since my college days. A short history of financial euphoria can be read in two hours, it offers amusement as well as utility.

All of us regularly come across people who believe in earning 20-100% on stock markets, who genuinely believe the markets can go up for ever, glued to the business TV channels they are convinced of their financial wizardry, they have discovered singular mechanisms to outwit the market and make money. Galbraith in one sentence describes those people: “Financial genius is before the fall.”

This book presents, in a story form, the “bubble” episodes of the past three hundred years, starting with Tulipomania, an irrational craze in Western Europe to invest in Tulip bulbs. This is followed by Britain’s South Sea bubble, and the 18^th century obsession with joint stock companies (which continues till today). The meaning of leverage can be truly understood on reading this book.

Financial memory is short and doesn’t last for more than twenty years. Greed is an overpowering emotion as compared to caution. Galbraith’s book warns us with historical evidence that the bubbles, the pyramid schemes and the scheming crooks on one hand and the gullible financial wizards have existed for more than three centuries. Euphoria is inevitably followed by bust, disgrace, even exile or suicide.

Verdict: If you believe you can make huge money in markets, you must read this book to temper your optimism.