“A Short History of Financial Euphoria” – John Kenneth Galbraith

“Anyone taken as an individual is tolerably sensible and reasonable – as a member of a crowd, he at once becomes a blockhead.” – Frederich Von Schiller

… The more obvious features of the speculation episode are manifestly clear to anyone open to understanding. Some artifact or some development, seemingly new and desirable – tulips in Holland, gold in Louisiana, real estate in Florida…

… The speculation on itself provides its own momentum.

… The process, once it is recognised, is clearly evident, and especially so after the fact. So also, if more, subjectively, are the basic attitudes of the participants. These take two forms. There are those who are persuaded that some new price-enhancing circumstance is in control, and they expect the market to stay up and go up, perhaps indefinitely. It is adjusting to a new situation, to a new world of greatly, even infinitely increasing returns and resulting values. Then there are those, superficially more astute and generally fewer in number. Who perceive or believe themselves to perceive the speculative mood of the moment. They are in to ride the upward wave; their particular genius, they are convinced, will allow them to get out before the speculation runs its course. They will get maximum reward from the increase as it continues; they will be out before the eventual fall.

… For built into this situation is the eventual and inevitable fall. Built in also is the circumstance that it cannot come gently or gradually. When it comes. It bears the grim face of disaster. That is because both of the groups of participants in the speculative situation are programmed for sudden efforts at escape. Something, it matters little what-although it will always be much debated-triggers the ultimate reversal. Those who had been riding the wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell.

… Thus the collapse. And thus the rule, supported by the experience of centuries; the speculative episode ends not with a whimper but with a bang. There will be occasion to see the operation of this rule frequently repeated.

… The first is the extreme brevity of the financial memory. In consequence, financial disaster is quickly forgotten. In further consequence, when the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliant innovative discovery in the financial and larger economic world. There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

… The second factor contributing to speculative euphoria and programmed collapse is the specious association of money and intelligence.

… The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version.

… All crisis have involved debt that, in one fashion or another, has become dangerously out of scale in relation to the underlying means of payment.

… In the aftermath, the bitterness, recrimination, and the search for scapegoats-all normal-were extreme, as was the avoidance of the mention that the mass mania was the true cause.

… I can measure the motion of bodies, but I cannot measure human folly – Sir Isaac Newton

… mass escape from sanity in the pursuit of profit.

… Nobody blamed the credulity and avarice of the people- the degrading lust for gain.

… Increasing values brought increasing values.

Irving Fisher…the most innovative economist of his time. In the autumn of 1929, he gained enduring fame for the widely reported conclusion that “stock prices have reached what looks like a permanently high plateau.”

… The circumstances that induce the recurrent lapses into financial dementia have not changed in any truly operative fashions since the Tulipomania of 1637.

… The least important questions are the ones that most emphasised: What triggered the crash? Were there some special factors that made it so dramatic or drastic? Who should be punished?

… The only remedy, in fact, is an enhanced scepticism that would resolutely associate too evident optimism with probable foolishness…

… When will come the next great speculative episode, and in what venue will it recur-real estate, securities markets, art, antique automobiles? To these, there are no answers; no one knows, and anyone who presumes to an answer does not know that he doesn’t know. But one thing is certain: there will be another of these episodes and yet more beyond. Fools, as it has long been said, are indeed separated, soon or eventually, from their money. So alas, are those who, responding to a general mood of optimism, are captured by a sense of their own financial acumen. Thus us has been for centuries; thus in the long future it will also be.