The author has done an excellent job showing the inevitable negative impacts that result from speculative behavior.He also shows that a fundamental error made by economists is to confuse enterprise and entrepreneurship with speculation.The idea that speculative behavior is entrepreneurial in nature is the basic error that lies at the heart of both the libertarian-Austrian school of economics(Ayn Rand,Murray Rothbard,Ludwig von Mises,etc.) and the University of Chicago economics approach(Milton Friedman, Robert Lucas,George Stigler,Gary Becker,etc.).This fallacious belief is then propounded by pseudo conservative Libertarian organizations ,like the Olin,Heritage, and Mellon Foundations ,and the American Enterprise Institute,to be an example of free enterprise.The foundation for these misbeliefs is called the Efficient Market Hypothesis(EMH).This hypothesis only holds when applied to consumption goods markets.There is not a shred of evidence,historical or statistical, that the EMH applies to investment markets or financial markets over time.The EMH is based on the empirically refuted claim that all of the time series data for price changes in financial markets can be modeled as being normally distributed.Benoit Mandelbrot demonstrated in the late 1950's that the financial market time series data is not even close to being approximately normally distributed.There has not been a single goodness of fit test provided by EMH adherents (Milton Friedman,Robert Lucas,Arthur Laffer,Eugene Fama)over the last 120 years that demonstrates normality.Empirical work overwhelmingly shows that the time series data is best modeled by the Cauchy Distribution.Friedman's Ptolomaic-like belief in the EMH explains his claims that all bubbles are rational(i.e.,there is no such thing as a speculative bubble)and the following assertion, quoted on p.540 by the author: "Speculation has come of age;it can sit quite comfortably side by side with investment;and it is as legitimate and necessary as the securities markets themselves ". This is an excellent demonstration of the confusion one finds in the economics profession concerning investment in long run,long lived,durable physical capital
formation, aimed at producing goods/services for a possible future economic profit and short run ,banker financed, debt leveraged financial speculation aimed at extracting an economic profit without the production of any good or service.I have deducted 1/2 of a star from this book because the author ,unfortunately,has no discussion of the EMH in the book.
The author does demonstrate that J M Keynes had correctly showed that the basic problem accounting for major downturns in economic behavior was speculation(pp.457-458).Keynes proved this on pp.304-306 of chapter 21 of his General Theory(1936).However,he overlooks the far,far more extensive demonstration made by Adam Smith, in his The Wealth of Nations(1776),that banker financed speculation will always lead to the waste and destruction of the savings of the depositors(See pp.260-340,Modern Library(Cannan)edition,Max Lerner Introduction).Smith demonstrated that the primary responsibility of a central bank is to control the private commercial banking system so as to prevent them from lending to speculators or engaging in speculative behavior themselves. The author shows that President Andrew Jackson never absorbed this lesson.Unfortunately,Jackson,while a major opponent of speculative behavior himself,failed to put aside his personal grudge/disagreement with Nicholas Biddle,the patrician head of the Second Bank of the United States,who was trying to stop the massive speculative behavior of the state "Wild catter" banks,and prevented the banks charter from being renewed in 1836.This lead to one episode after another of banker financed speculative behavior that was supposed to be controlled with the formation of the Federal Reserve System(FRS) in 1913.Unfortunately,the private commercial banks have dominated the FRS,except in the time period of 1938-1952.
The author provides overwhelming historical evidence that every single speculative wave of financing in every country in history over the last 400 years ends up leading to a panic,crash,and economic collapse that leads to a recession or depression.He overlooks one individual who should have been included in his discussions of famous speculators who caused economy wide collapse-Andrew Dexter,Jr.,who, working out of Boston in the 1806-1808 time period,single handily created a depression all along the Eastern Seaboard during 1809-10.Dexter is important because he realized the best way to finance speculative behavior was through the control of banks .
Overall,this is an excellent history of what has happened in the past,not only in the USA but worldwide, over the last 400 years, when speculators,masquerading under the false claim that they are engaging in free enterprise in free markets,are able to engage in leveraging their debt positions a 100 fold and sell many different types of very dubious 'financial services' to an unwary public that ,unfortunately,periodically "buys in" to the speculator serenade that this time ,it will be different and the bubble will go on expanding indefinitely into the future.Americans are now going to have to pay a horrible price for allowing the banker speculators and private equity firms to put their schemes across over the last 30 years.
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CLEOMENES III
No problems. Book as described. Would buy from seller again.
Reviewed in the United Kingdom 🇬🇧 on December 2, 2016
