The extreme brevity of financial memory

From the second chapter of John Kenneth Galbraith’s A Short History of Financial Euphoria (1990):

Contributing to and supporting this euphoria are two further factors little noticed in our time or in past times. The first is the extreme brevity of the financial memory. In consequence, financial disaster is quickly forgotten. In further consequence, when the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world. There can be few fields of human endeavor in which history counts so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

The second factor contributing to speculative euphoria and programmed collapse is the specious association of money and intelligence. Mention of this is not a formula for eliciting reputable applause, but, alas, it must be accepted, for acceptance is also highly useful, a major protection against personal or institutional disaster.

The basic situation is wonderfully clear. In all free-enterprise (once called capitalist) attitudes there is a strong tendency to believe that the more money, either as income or assets, of which an individual is possessed or with which he is associated, the deeper and more compelling his economic and social perception, the more astute and penetrating his mental processes. Money is the measure of capitalist achievement. The more money, the greater the achievement and the intelligence that supports it.

Further, in a world where for many the acquisition of money is difficult and the resulting sums palpably insufficient, the possession of it in large amount seems a miracle. Accordingly, possession must be associated with some special genius. This view is then reinforced by the air of self-confidence and self-approval that is commonly assumed by the affluent.