Devil Take the Hindmost: A History of Financial Speculation

Beginning with the "tulipomania" that gripped Holland in the 1630s, Chancellor chronicles the formations and irrational euphoria that can inflate markets, from shares of South Sea stock in England in the 1720s to real estate in Japan in the late 1980s. He characterizes the speculative spirit as one that

loves freedom, detests cant, and abhors restrictions. From the tulip Colleges of the seventeenth century to the Internet investment clubs of the late twentieth century, speculation has established itself as the most demotic of economic activities. Although profoundly secular, speculation is not simply about greed. The essence of speculation remains a Utopian yearning for freedom and equality which counterbalances the drab rationalistic materialism of the modern economic system with its inevitable inequalities of wealth.

Chancellor makes Devil Take the Hindmost especially relevant to today's U.S. investors by using his analysis of past speculative manias as a lens through which to view the current bull-market binge. No matter what his or her current investment outlook is--bull or bear--anyone with capital to invest would do well to spend a thoughtful weekend with this book. Highly recommended. --Harry C. Edwards

Book Description
Is your investment in that new Internet stock a sign of stock market savvy or an act of peculiarly American speculative folly? How has the psychology of investing changed--and not changed--over the last five hundred years? Edward Chancellor examines the nature of speculation--from medieval Europe to the Tulip mania of the 1630s to today's Internet stock craze. A contributing writer to The Financial Times and The Economist, Chancellor looks at both the psychological and economic forces that drive people to "bet" their money in markets; how markets are made, unmade, and manipulated; and who wins when speculation runs rampant. Drawing colorfully on the words of such speculators as Sir Isaac Newton, Daniel Defoe, Ivan Boesky, and Hillary Rodham Clinton, Devil Take the Hindmost is part history, part social science, and purely illuminating: an erudite and hugely entertaining book that is more timely today than ever before.

"Entertaining, useful, admirable scholarship . . . Chancellor seems to have read everything." --Adam Smith, The New York Times Book Review

"Anyone contemplating a stock market venture and certainly anyone now involved should read this book."--John Kenneth Gailbraith

In my short experience as an investor, it was some of the most sage advice I have received. Edward Chancellor book arrives at the same conclusion but provides more foundation to recognize the bubbles of speculation.

Investment bubbles never change. Yet, for the investor or trader caught up in one, they remain difficult to identify. According to modern economic theory, markets are efficient and speculators are rational opportunists intent on maximizing their wealth.

Chancellor, a former investment banker and historian, disagrees. More than fear and greed drives speculators, they motivated by deeper compulsions and aspirations. Speculation, he says, can only be understood within a social context and that its history cannot be a simple description of economic affairs. It is important to understand the behavior and attitudes of politicians, since the laws governing markets are written and enforced by governments.

He traces the origins of speculative fever back to ancient Rome and follows the thread through Holland's tulip mania in the 1630s and London's stockjobbers 70 years later.

The book ends with an insightful analysis of the Junk Bond era here in the United States, the Japanese bubble and the near collapse of Long Term Capital Management. It is a must read for every serious investor.


Superb Introduction to Speculative Bubbles   February 23, 2001
Mark Wylie (Spokane, WA United States)
25 out of 26 found this review helpful

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.


Macro Perspective...Micro Analysis   January 16, 2000
Robert Morris (Dallas, Texas)
10 out of 10 found this review helpful

It is helpful to our understanding of financial speculation early in the 21st century to view it within an historical framework. Chancellor provides such a framework and more...much more. In the the initial chapter ("The Bubble World"), he explains the origins of financial speculation and then shifts his attention to a series of famous (sometimes infamous) situations throughout three centuries. As Chancellor explains, "I concentrate on occurrences of speculation in the leading economic powers of the day, from the Dutch Republic in the seventeenth century to Japan in the 1980s, interspersed with the occasional look at speculation in the present day. I believe that speculation can only be understood within a social context and that a history of speculation cannot simply be a description of economic affairs but must also be something of a social history." Joel Mokyr has a similar objective in The Lever of Riches in which he examines various interrelationships between technological creativity and economic progress since classical antiquity. Both he and Chancellor present information and develop their ideas within what could be called an "historical infrastructure." They succeed admirably.

In Chapter 7, as Chancellor concludes his examination of "The Gilded Age", he quotes the American economist H.C. Emory who wrote that "whereas gambling consists in placing money on artificially created risks of some fortuitous event, speculation consists in assuming the inevitable risks of changes in value." For Chancellor, speculation in the late-nineteenth century "brought more harm than good and transferred property from the hands of the many into the pockets of the few." This is also a useful perspective on the subsequent "Crash" of 1929 and thereafter, a volatile period which Chancellor also analyzes with eloquence as well as insight.

It is an even more useful perspective on the economy of a country such as Russia in the early-21st century. As Chancellor correctly points out in the Epilogue, "The issue of speculation in emerging markets and the unfettered trade in foreign currencies is the most immediate and vexing problem faced by policymakers." For me, Devil Take the Hindmost is an absolutely indispensable guide to more than three centuries of stock market speculation. He focuses on a broad range of speculators (eg Del Defoe, Benjamin Disraeli, Jay Gould, Ivan Boesky, Michael Milken, and Hilary Rodham Clinton); in process, he suggests that the primary motives which drive these and other speculators are far more complicated than many of us (I at least) had assumed...and, as often as not, these morives reflect "the national character" of the country in which a speculator succeeds or fails.


Excellent social-economic history of finance   July 9, 2000
11 out of 11 found this review helpful

Chancellor is a rare breed: an economic historian well versed in both the nitty-gritty of financial analysis, and in the "reading" of social and intellectual history. This book presents plenty of both. Its author is extremely well-read ("seems to have read everything," as one professional reviewer wrote) on both fronts, and interweaves the two methods of argument admirably. Plentiful first-person quotations -- some from famous writers and intellectuals who speculated in financial markets of their time -- provide solid evidence for Chancellor's argument, as well making very entertaining reading about the personal financial activities of figures such as Alexander Pope and Daniel DeFoe.

Chancellor also stakes out his territory intellectually and academically. This is not just a ho-hum journalistic history book. It is well supported with theory, argument, and analysis. For example, Chancellor attempts to discredit economic historians who sit too far in the "social history" camp, as well as those who sit too far in the "rationality" camp. For example, Chancellor gives the "tulipmania apologists" (rational-expectations theorists who claim there was nothing irrational about tulipmania) quite a thrashing. On the other hand, he does draw upon theoretical tools such as liquidity premiums and moral hazard to explain some financial manias, and is well versed in all forms of financial analysis. I failed to be entirely convinced by many of Chancellor's arguments, but nonetheless, I found them stimulating and thought-provocative.

Because "financial speculation" encompasses almost all financial activity, this book encompasses enough to be a standalone primer on the history of financial trading.

As an added bonus, Chancellor is a very readable, and even clever and amusing, writer. His occasional tongue-in-cheek remarks add life to some (necessarily) dry discussions of the history of financial instruments.

This is an excellent history of finance, not just of financial speculation. Although I read this book for pleasure, not as an "investment book," it also has some wise lessons for investing, although the comparisons of internet stocks to Dutch tulips are by now a tired cliche (and, mercifully, Chancellor doesn't dwell too heavily on those comparisons).


Pop Go the Weasels: On Market Bubbles and Skullduggery   February 26, 2003
Scott Snyder (Northern California)
11 out of 11 found this review helpful

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.