Devil Take the Hindmost Edward Chancellor Explained

Edward Chancellor's concept of "Devil Take the Hindmost" suggests that the pursuit of wealth and power can lead to a self-reinforcing cycle of speculation and excess.

In this cycle, investors are driven by the desire to be among the first to profit from a new opportunity, often at the expense of others. This can result in a frenzy of buying and selling, with prices rising rapidly as more and more people jump on the bandwagon.

Chancellor argues that this behavior is not just driven by greed, but also by a desire to avoid being left behind. As he notes, "the most successful speculators are those who are prepared to take the greatest risks."

The difference between speculation and investment is so thin that it's often debated. The line between the two can be blurred, but according to J. A. Schumpeter, the key difference lies in the intention to "trade" or realize profits from fluctuations in security prices.

Speculation is an attempt to profit from changes in market price, which means forgoing current income for a prospective capital gain is deemed speculative. This approach is active, as it involves actively trying to make a profit.

The primary aim of speculation is the enhancement of fortune, as Schwed put it: "Speculation is an effort, probably unsuccessful, to turn a little money into a lot." This contrasts sharply with the preservation of capital, which is the primary aim of investment.

Investment, on the other hand, is an effort to prevent a lot of money from becoming a little, which should be successful. This approach is generally passive, as it involves holding onto an asset with the expectation of long-term growth.

The Austrian economist J. A. Schumpeter defined the difference between a speculator and an investor as the presence or absence of the intention to "trade."

The seeds of each boom are sown during the preceding crisis, when the liquidation of credit causes asset prices to decline so severely that they become genuine bargains.

Investors become "blind" after a crisis, unable to remember the past and condemned to repeat it.

Capital becomes convinced that prosperity will last forever, leading to excessive speculations by mercantile houses.

Frauds are perpetrated on investors during the upturn of the cycle, which only come to light after a crisis.

People are most credulous when they are most happy, making them vulnerable to scams and get-rich-quick schemes.

Financial History is a wild ride, folks. It's been around since the Roman Coliseum, where people would bet on gladiatorial contests.

Speculation has been a part of human nature for thousands of years, with the Romans using it to fund public works and wars. The Roman historian Plutarch wrote about the practice of speculating on the outcome of battles and events.

The concept of speculation has evolved over time, with the rise of modern capitalism bringing new forms of speculation to the table. The Internet bubble of the late 1990s is a prime example of speculation gone wrong.

The Roman Coliseum was a symbol of the excesses of the Roman Empire, where people would gamble on the outcome of gladiatorial contests. This excess has been a recurring theme throughout financial history.

The history of financial speculation is a long and complex one, with many ups and downs along the way. The Internet bubble was a major downturn, with many investors losing their shirts.

The Roman historian Plutarch wrote about the corrupting influence of wealth and power, which is still relevant today. The excesses of the Roman Empire serve as a cautionary tale for modern investors.

The Internet bubble was fueled by speculation and hype, with many investors buying into the promise of high-tech stocks. This led to a massive bubble that eventually burst, causing widespread financial losses.

Speculation is a natural part of human nature, but it can also lead to disastrous consequences. The history of financial speculation is a reminder of the importance of caution and prudence in investing.

The essence of speculation remains a Utopian yearning for freedom and equality, counterbalancing the drab rationalistic materialism of the modern economic system with its inevitable inequalities of wealth.

The stock market didn't evolve quietly, but rather came into existence fully formed, like the goddess Athena. This sudden emergence can lead to a frenzy of speculation, where companies introducing new technologies are often overhyped.

Investors are just as likely to be whipped up into a frenzy over new technologies as they were in the past, with progress being cyclical in finance rather than cumulative like in science and engineering.

The three M's - mystery, manipulation, and thin margins - hindered the stock market from allocating capital efficiently, leading to unnecessary bank failures and crippling companies that might have prospered without the stock market.

A rising market can cover up weaknesses in the economy, at least in the short run, as consumers spend their gains and ignore rising debts.

The score of 7/10 suggests that the speculative market has its flaws, but also has a certain allure to it. The essence of speculation is a Utopian yearning for freedom and equality that counterbalances the drab rationalistic materialism of the modern economic system.

Investors can get caught up in a frenzy over new technologies, just like the "diving engine 'cullies'" of the past. This can lead to a self-fulfilling prophecy, where a rising market covers up weaknesses in the economy.

A fashionable style in speculation follows a trend until it reaches a point of extravagance, from which it can only retreat. This is similar to how a speculative movement can get out of hand.

The bubble legends of the past reveal the deep apprehensions that many contemporaries had about speculative schemes. These legends served as an admonition to future generations of speculators.

The three M's - mystery, manipulation, and thin margins - hindered the stock market from fulfilling its theoretical function of allocating capital efficiently.

Manias are a natural part of a fashionable style, just like a speculative movement. They follow a trend until it reaches a point of extravagance from which it can only retreat.

Keynes noted that the stock market values ultimately depend on a state of confidence, which is the outcome of the "mass psychology of a large number of ignorant individuals."

Speculators are often driven by fantasy rather than sound information. This can lead to a rapid spread of ideas, much like a contagion.

The speedier the communication, the faster the contagion spreads, making it harder to stop a mania once it's underway.

Capitalism and Greed are closely intertwined, as Friedman boldly asserted that all societies are structured on greed. He believed that the problem of social organization is how to set up an arrangement where greed does the least harm.

Capitalism is a system that allows greed to operate in a way that minimizes harm, according to Friedman. This is because capitalism provides a framework for individuals to pursue their self-interest in a way that benefits society as a whole.

Speculative manias, like the tulip mania of the 1630s, often occur when people overestimate the potential gains of a new industry or technology. This can lead to a surge in investment, as seen in the Dutch flower industry, which is now the largest in the world.

However, not all investors are experienced or rational, and the euphoria of a speculative mania can lead to a weakening of rationality. This can result in investors making poor decisions and losing money.

As Kindleberger notes, speculative manias typically commence with a displacement that excites speculative interest. This displacement can come from a new object of investment or the increased profitability of established investments.

In the case of the tulip mania, company promoters took advantage of investor euphoria to float new ventures, many of which were fraudulent undertakings.

Credit Growth was a key factor in the economy. By the end of the decade, outstanding instalment debt had risen to $6 billion.

As consumers, we've all been there - wanting to buy something but not having the cash upfront. This is exactly what happened with instalment purchases, where people could buy things like radios, fridges, cars, and clothes on credit.

Around an eighth of all retail sales were made on credit by the end of the decade. This shows just how big a role credit played in the economy.

The growth of instalment credit had a decidedly speculative element to it. This means that present consumption was being financed with anticipated earnings.

Speculation and financial fraud were frequent bedfellows, making it difficult to determine whether speculation lowered moral standards or if the era's moral decay simply manifested through speculation.

The prevalence of speculation in the era made it a breeding ground for financial scams and deceitful practices.

The more proven an investment theory is, the less it is questioned. This phenomenon is quite ironic, especially in the financial markets where "proven" investment theses tend to lose their validity when acted upon.

A great example of this is the 1920s stock market boom, which was induced by the statistically reasoned proposition that stocks were neither speculative nor particularly risky investments. This theory was so widely accepted that it went unchallenged for a long time.

Investors tend to get caught up in the excitement of a proven theory and ignore dissonant information. As long as investors maintain their faith in a new era and ignore dissonant information, then stocks will continue to rise.