A Short History of Financial Euphoria – A Review

Going through a two-year program to learn about marketing, finance, accounting, mergers, acquisitions, strategic management, and a lot more courses that possibly serve no grand purpose other than a proclamation of having undertaken a master's level education is my definition of business school. Yet, the more crucial lessons in life are written on books that aren't exactly paid by a tuition fee -- I don't see how my MBA can help me make prudent investment choices or help me steer clear from asinine decisions.

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A Short History of Financial Euphoria

The late John Kenneth Galbraith's "A Short History of Financial Euphoria" provides us lessons deserving of constant revisiting -- on every possible occasion. It is somewhat a reminder for investors that there are particular events in history, laughable to some as it may seem now, that, indeed, gravely underscores a predictable pattern. 


  • Provides timeless financial knowledge
  • Offers incisive observation on past speculative episodes 
  • Gives readers a brief overview for how cycles work


  • Doesn't cover the 1929 crash extensively as well as the rest of the financial bubbles

A compendium of speculative mania

I would best describe Mr. Galbraith's short book (128 pages on the print edition) as a collection of the notable bubbles in history. Although the details of the manic episodes that he cited purvey only a general idea, he gives definitive statements for how such developments came about.

If you are not familiar with the more well-known financial bubbles, then you'd probably be dismayed by how condensed Mr. Galbraith touched on those occurrences.

For example, the great depression isn't covered exhaustively, and it ascribes no direct cause that triggered the crash -- a more thorough examination of that event would be found in his "The Great Crash 1929" book.

Possibly a precursor to understanding cycles

I have been curious as of late as to how cycles unfold as well as determining a particular inning of a cycle to guide my investment choices, especially the most appropriate one that hinges on where we're at in the cycle.

In fact, my obsession with understanding cycles has led me to purchase books written by Howard Marks and Ray Dalio, which I'm going to publish my review here in the next few weeks. But, Mr. Galbraith's work on financial euphoria seems to me like a prerequisite to comprehending the very nature of cycles.

When you get to learn about the psychological factors at play in certain periods in a cycle, you'd be able to accurately point out that investor exuberance coupled with greed propagates bubbles.

For investors to think that markets will remain up in an indefinite period is a clear-cut sign of speculative mood, as indicated by the book.

Yes, Leverage

John Kenneth Galbraith pointed out that debt is another culprit for such speculative episodes, perhaps the fuel of crises. The real power driving mass hysteria to propel prices to insane heights is borrowed money paired with greed and the illusion that profit-taking is illimitable.

In the book, Mr. Galbraith explained how leverage had taken different forms in all the bubbles he tackled.

New Financial Products

When I think of innovative financial products, the first thing that comes into mind is cryptocurrency being that it's quintessential of contemporary financial innovation. As a critic of the whole bitcoin rush in 2017, Mr. Galbraith's work reinforced my biases against cryptocurrencies.

His book notes that the advent of financial innovation is an overture to euphoric mood and that skepticism should be practiced in assessing "new" ideas. Mr. Galbraith described how faulty our recollection is of financial crises, and we often get detracted from perceiving that some financial innovations are derivatives of disastrous ideas in the past.

Favorite Quote

One of my favorite quotes in the book is "Speculative episodes ends not with a whimper but with a bang." As in the case of the 2008 crisis, a bang would merely be an understatement. The devastating effects of that event haunt Americans up to this day.

The economic stimulus that had been in place since 2009 still can't pulsate a resounding beat on inflation even though parts of the economy seem to be normalizing like jobs and unemployment. Furthermore, even as the national debt climbs to 78% of GDP, interest rates are still at 2.5% with the FED holding back on a hawkish stance back in January.

AAII Investor Sentiment Survey Intellinvestors

Only 35.1% are bullish on the stock market for the next 6 months. Source: https://www.aaii.com/sentimentsurvey

The ramifications of speculating are indeed grave, and this book's ultimate purpose perhaps is to serve as a warning for investors to be cautious. Now, with the U.S. still pushing for its longest expansion in history (116 months as of today) and an absence of excessive risk-taking in the stock market -- if not more of a bearish sentiment -- one would question, where will the next bubble be?


I think this book is a classic that offers readers an analysis of the euphoric episodes in history by one of the greatest minds in economics. It is a must-read for investors looking for an overview of those events. However, the only complaint I have for this book is since it doesn’t go into the specifics of the crises, a thorough internet search for comprehensive coverage would be more practical. But, overall it’s a great read packed with sagacious wisdom.

I hope you liked our book review, and if you have any questions or comments about this article, please leave them below. You can also subscribe to our blog for the latest finance and investment articles.

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