Art.view | Bubbles, booms and busts | Economist.com

Bubbles, booms and busts

Mar 31st 2007
From Economist.com

Selling the history of financial speculation

THE FINANCIAL world is flooded with literature: on hedge-fund investing, portfolio theory, discounted cash flows; on options, kurtosis and PEG ratios; on alpha, beta and omega. There is so much noise—so many titles and so much repetition—that it is easy to forget that there was once a time when the most common market aids were the pencil, the tape and the telephone.

Christopher Dennistoun, a British antiquarian book dealer (and part-time stock trader), has spent 30 years collecting works on the history of the stockmarket and financial speculation. Some remain in print. Others, long forgotten, await resurrection. This is a field that lies well outside the interest of most booksellers, and it has prospered beneath the radar of the auction rooms.

Even though Mr Dennistoun has immersed himself in the subject, tracking down such arcane books has never been easy, which is why this set of more than 700 volumes is unique.

Only the University of Toledo’s Hess collection of books on Wall Street, with an emphasis on technical analysis, is reckoned to come anywhere near to what Mr Dennistoun is offering.

The golden era of speculation dates arguably from 1880 to 1960, when New York was predominant. But the collection starts well before that. The earliest example is a rare London jobber’s sheet issued on May 3rd 1698 by John Castaing “at his Office at Jonathan’s Coffee-house” that posts the prices of marketable securities all over Europe, from Hamburg to Cadiz.

The first great stockmarket crash occurred in 1720. For well over a year before that Daniel Defoe had been pillorying the stock-market manipulation and sham reports that were used to push up stock prices. As Mr Dennistoun’s copy of Defoe’s book, “The Anatomy of the Exchange Alley”, recounts, “’tis a compleat system of knavery; that ’tis a trade founded in fraud, born of deceit, and nourished by trick”.

The fury this generated is also recorded vividly in a series of copper-engraved satirical cartoons entitled “Het Groote Tafereel der Dwaascheid” or “The Great Mirror of Folly” (pictured below) that mock the bubble companies of the first great Amsterdam tulip scam.

The 19th century was also punctuated by another series of booms and busts, producing a body of “how-to” literature that described both how to make money and how to avoid being had.

Louie FascioloThe bottom of the market

But it was not until 1841 that the idea of crowd-driven market frenzy was formally introduced into Western literature.

In a remarkable three-volume series, “Memoirs of Extraordinary Popular Delusions”, Charles Mackay, a precursor to Gustave le Bon and Elias Canetti, examined a range of speculative bubbles. There are chapters on the Amsterdam tulip mania, on the Mississippi scheme dreamt up by John Law (looking quite the gent in his buckled shoes and frockcoat weighed down with frogging), and on the “popular admiration for great thieves” such as Dick Turpin, Jonathan Wild, and Claude Duval, reckoned to be one of the most dashing highwaymen to haunt the roads of England.

By the early 20th century speculation was becoming more popular, and printing presses in Europe and America were working full tilt to turn out works on the stock market. Here you can see the beginnings of formal analysis. In 1898 “The Game in Wall Street and How To Play It Successfully” offered one of the first stock charts, showing points of accumulation and distribution. Meanwhile market theorists such as Robert Giffen, an English economist, and Samuel Benner (in “Prophecies of Future Ups and Downs in Prices”) tried to analyse market cycles and fluctuations, foreshadowing the work of men such as Nikolai Kondratieff and R.N. Elliott.

But it was the makers of huge fortunes, especially during the roaring 1920s, who captured popular fascination. Theodore Dreiser, Upton Sinclair and, later, Louis Auchincloss all wrote novels centred on men who made markets. Some were clean; the most exciting were not. Says Guy Prime, Mr Auchincloss’s hero: “I am a symbol of financial iniquity, of betrayal of trust, of the rot of the old Wall Street before the cleansing hose of the New Deal.”

Their models were men who went head to head, like Arthur Cutten and Jesse Lauriston Livermore. Livermore is still regarded as the quintessential speculator (he is the subject of three biographies), but it was Cutten, the self-styled “dirt farmer”, who was the most successful. In 1925 he is reckoned to have taken as much as a $15m profit from the wheat pits alone.

That said, his book, “The Story of a Speculator”, which he had privately printed in 1936, has to be the world’s driest attempt at autobiography. “I like to make money,” he begins. “I have made it because I like to make it”. Cutten may have faded from history now, but he lives on in Mr Dennistoun’s collection, a testament to man’s lasting desire to make a quick buck.

Christopher Dennistoun’s collection of books about stockmarkets and financial speculation will be offered for sale by Bernard Shapero Rare Books, London, in May. Price: £375,000 ($738,000)

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