Book Review Series: A Menagerie of Speculative Follies

Review of The Pit and the Pendulum: A Menagerie of Speculative Follies, by David Harding & James W. Holmes (Winton Ed.)

Reviewer: Vardhan Kapoor

The Pit and the Pendulum: A Menagerie of Speculative Follies is an ambitious work which covers 700 years of financial crises through the looking glass of waves of optimism and pessimism.  The global financial crisis triggered an array of literature on the history of finance including David Graeber’s Debt: The First 5000 Years and Niall Ferguson’s The Ascent of Money. This addition to the literature is a welcome one, as it aims to break with some of the questionable assumptions that dog the academic discipline of economics and economic history.

The book analyses forty-six episodes of financial folly divided into seven eras, beginning with "Merchants, Kings and Projectors (1300-1700)" through "Napoleons, Titans and Pashans (1880-1900)" and finishing with "Yuppies, Tycoons & Quants (1985-2008)". The names of the themes reflect the erudite vivacity of the work, which includes an astounding amount of pertinent and symbolic art from the time of the events, as well as peppered insights from the academic literature.

The acquiescence of economic departments towards the validity of their methodology after the crash was a source of concern for the founders of Rethinking Economics. One of the most pervasive aspects of economics and economic history is its reliance on models that rely on a very particular sense of rational expectations as their starting premise. It is therefore very pleasing that, while pursuing detailed statistical analyses, David Harding’s explicitly aims to challenge the notion that markets are governed by an unalterable rationality: "Markets are human institutions, vital to progress, but they are not perfect. They reflect the humanity of their participants, and therefore we should neither worship nor despise them". This is an important nuance, one that some of the greatest economics minds have been quick to point it out; as Albert Hirschman said of Adam Smith, it wasn’t the government which he despised, but rather, their folly.

As a whole, the work proves extremely readable set of snapshots into instances of financial mania. There is a certain levity with respect to the suffering caused by the financial crashes through history; the narrative betrays a sense of wonder at the endless possibilities of market dynamics, but the book would benefit from having solutions to these issues. In a way, the lesson to take from it is that financial mania has a way of putting all of us under its spell. Ultimately the book succeeds in providing a scrumptious read.