Devil Take the Hindmost

Subtitled A History of Financial Speculation, Devil Take the Hindmost is exactly that: a history, with chapters on notable speculative bubbles or surges going back to the 1630s. The first significant bubble described is, of course, the notorious tulip speculation in Holland, but Chancellor is more thorough than any previous history I've read. There are chapters on the early stock market schemes, the South Sea bubble, 1820s emerging markets, the railway mania of 1845, the Gilded Age, the late 1970s and early 1980s, and the Japanese real estate bubble of the 1980s, as well as the mandatory look at the stock market crash of 1929. Each is thorough and detailed; indeed, perhaps slightly too detailed, as the clear narrative picture can occasionally groan under the weight of names and capsule biographies.

The first thing one should realize about this book is that, despite the apparent currency of the topic, it was written in 1999. That means it predates both the subprime real estate collapse and the dot.com boom, as well as some more minor but possibly relevant events such as the Enron electricity market manipulation. Japan is the most recent bubble that Chancellor can cover; one can only speculate as to what he would make of the 2008 financial crash.

The other focus to be aware of is the omission of sovereign debt. Chancellor is exclusively focused on private markets, usually stock markets, and (apart from the chapter on Japan) Western markets, mostly in the US and the UK. Governments play a role in some of the early speculative bubbles (most notably the South Sea bubble), but Chancellor's topic is private speculative frenzies, not the risks and effects of government borrowing. Interrogation of the role of government is mostly limited to cursory discussions of the impact of regulation, mostly in the negative. More on that in a moment.

This is a history as opposed to either a polemic or a prescription. Chancellor does not set out to explain how to curb financial speculation. Insofar as he expresses an opinion on it, he presents speculation as a force of unbridled freedom in natural tension with regulation and financial conservatism and sees a cyclical pattern of speculative frenzy, collapse, retrenchment, and then renewed speculation. Speculation, as presented here, is more akin to a force of nature than, as seen in most other books on the topic, a phenomenon of greed that should be limited or prevented.

Indeed, Chancellor seems skeptical of the entire project of preventing or limiting speculation, and presents considerable reason for the reader to become skeptical as well. The history he presents is one of speculative manias adapting to and circumventing every control that governments and markets have attempted to place on them. When certain practices are outlawed (and some modern complex financial practices have surprisingly long histories), people just find loopholes or alternative approaches through which to accomplish the same thing. Or the speculative mania takes an unexpected new form. Nor do the manias seem to be decreasing in severity as more regulation, custom, and restrictions attempt to blunt them. Even without adding the financial collapse of 2008, the impacts of the speculative frenzies documented here seem, if anything, to be growing.

This is, therefore, a relatively straightforward history, but it's an entertaining one, filling in details that I'd not previously been aware of. The complexity of financial schemes as early as the 1600s was particularly eye-opening. There's a tendency to believe that complex derivative schemes are an artifact of modern financial markets, but they've been a part of speculation for as long as Chancellor goes back. Computers may have added layers to the mathematics, but they haven't added as much to the legal strategems and levels of indirection as one might think. Chancellor emphasizes that throughout: speculation involves a lot of complexity, not necessarily to deceive but to construct situations in which it's in the interest (at least short term) of all involved parties to continue and escalate the speculation.

While Chancellor doesn't provide much encouragement to the reader hoping to find ways to curb speculation, he does show some commonalities that provide a bit of a handle on how speculation starts. The one that lept out at me was leverage. Every speculative bubble documented in Devil Take the Hindmost involves borrowing money to reinvest. The mechanism keeps changing, from straightforward loans during the tulip craze to much more complex constructions in modern finance, primarily in response to regulation that attempted to reduce leverage but only banned one specific technique. But whatever method is used, at the bottom is always some scheme for purchasing an asset using debt, magnifying both positive and negative price swings. Some variation of buying stocks on margin is particularly common; Chancellor documents how it was reinvented despite the limits on straight margin purchases instituted after the Great Depression. There is no recommendation here for any regulatory or legal action, but it's obvious from the repetition of history that limiting leverage would be the place to focus attention.

I enjoyed this history, but it can be dry, and at times is a bit overstuffed with names, unimportant details, and microbiographies. It's also unfortunate that Chancellor missed two of the most significant (and two very different) speculative bubbles through the timing of his work. It would have been interesting to see them through the lens of his history. What we have is still worth reading, but also somewhat frustrating in Chancellor's refusal to draw or at least underline general conclusions. Devil Take the Hindmost is long on history but short on analysis, and while I appreciate the historian's focus in a source of data, it left me somewhat unsatisfied.

Rating: 6 out of 10

Reviewed: 2012-10-27