plus ça change, plus c’est la même chose

Edward Chancellor writes in Devil Take the Hindmost: ” …the notion of intrinsic value was an oxymoron, since intrinsic suggested an inward quality, while value was always external. For instance, Nicholas Barbon argued that ‘things have no value in themselves, it is opinion and fashion which brings them into use and gives them a value’.”

Compare Nicholas Barbon’s view with what Harshad Mehta said centuries later. Harshad Mehta argued that the price of a share is a function of the market’s perception of the future and not the past.

“plus ça change, plus c’est la même chose”, meaning “the more things change, the more they stay the same”

#RidingTheRollerCoaster – 153

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Too much liquidity in the markets

Edward Chancellor writes in his classic book, Devil Takes the Hindmost: “By October 1929, broker loans and bank loans to investors had reached a total of nearly $16 billion. At this level, they represented roughly 18 percent of the total market capitalisation of all listed stocks.”

#RidingTheRollerCoaster – 96

Credit – an act of belief

“During the time of the Civil War (1642-51), English goldsmiths had taken on the functions of the bankers, making loans and creating a market for merchants’ bills of exchange (credit notes). By the 1690s, the total value of bills of exchange in circulation was believed to exceed the currency of the kingdom. Several writers observe that through its circulation this new form of credit had many properties in common with money. Yet credit, unlike gold, could be created and destroyed. It has no utility and its value depended on an act of belief” – wrote Edward Chancellor in his classic “Devil Take The Hindmost

Centuries later, today banks and institutions can create money through derivative contracts. By 2007, we had more money created through synthetic derivatives than the currency in the world. As Chancellor has mentioned, it could be created and destroyed unlike gold. History suggests that while this may be a good thing, as it provides credit to businesses and liquidity to markets, too much of a good thing is often bad.

#RidingTheRollerCoaster – 60