Distinguishing between investment and speculation is, a Wall Street banker remarked, like explaining to a troubled adolescent that Love and Passion are two different things. "He perceives that they are different, but they don't seem quite different enough to clear up his problem".
This vastly entertaining book also tries to identify where speculation and gambling meet. Both are dangerously addictive, fuelled by greed, often accompanied by delusional behaviour and, to be successful, demand firm control on emotions. There is even a manic physical manifestation, sometimes seen on the floors of the less sedate stock exchanges.
One of the most celebrated speculative frenzies took place around, of all things, the tulip. In the middle of the 16th century, the Imperial Ambassador to Suleiman the Magnificent, Ogier Ghislaine de Busbecq, introduced the first tulip bulbs into Europe from Turkey. They were given grandiose names like Semper Augustus and cultivated in the gardens of wealthy Dutchmen. In 1624, a Semper Augustus was sold for £1,200, the cost at the time of a small Amsterdam town house.
A market in tulip futures emerged, which was known as the windhandel (the wind trade). Sellers promised to deliver a bulb of a certain type and weight the following spring, buyers took the right to deliver. Most transactions were expedited with personal credit notes.
The author observes: "by the later stages of the mania, the fusion of windhandel with paper credit created a perfect symmetry of insubstantiality: most transactions were for tulip bulbs that could never be delivered because they didn't exist and were paid for with credit notes that could never be honoured because the money wasn't there".
The English brought us the bubble companies, evanescent creations designed to make money for the speculator at the expense of the credulous and greedy. One such bubble was "the Company of London Adventurers for the carrying on a trade to and settling colonies in Terra Australis". This venture was indeed a true speculation as it was floated over half a century before Captain Cook discovered Australia.
It may be the stuff of legend that bubble companies were established "for Trading in Human Hair" or "for better curing Venereal Disease".
THE South Sea Bubble was no legend. The directors of the South Sea Company proposed to take over - or, as we would say nowadays, privatise the British national debt. They took the precaution of issuing shares in their company to the King and sundry members of the government. In return, the King and the government endorsed the aims of the South Sea Company, the investors piled in, the share price kept rising. And so it kept going until, inevitably, the bubble burst because the South Sea Company was simply a shareramping operation. Alexander Pope was among those who lost money.
In late 1821, His Highness Gregor, Cacique of Poyais, a small territory on the border of present-day Nicaragua, arrived in London. His mission, he said, was to sell land rights, military commissions and titles of nobility to British subjects and encourage emigration to his country.
He was warmly received and the Cacique arranged to float a £600,000 Poyaisian loan in the City. It was heavily subscribed. Two hundred would-be colonists set up for the Poyaisian capital, described by the Cacique as an opulent baroque city. What they found was a collection of mud huts surrounded by swamps and hostile Indians. Suffering from heat, starvation and fever, several of the colonists drowned while attempted to flee to neighbouring Belize.
To this day, the Poyais loan remains the only loan for a fictitious country to be floated on the London Stock Exchange.
To more modern times and the "leveraged buyout" beloved of the Americans. This, in essence, meant borrowing money to buy something much bigger than yourself. Economically implausible, it enjoyed a vogue with Michael Milken and Henry Kravis and a clutch of investment banks driven by the solitary consideration of fees. Kravis, who is tiny, was said by his wife to be "quite tall when he stands on his wallet".
In considering the US, Mr Chancellor debates - a little inconclusively - the economic effects of speculation. Conservatives like Milton Friedman argues that speculation helps, by and large, to make markets efficient. Left-wingers - and moralists - say speculation is the spawn of the devil. Mr Chancellor concedes there is some right in both positions
The most compelling chapter in the book is about Japan. It is a study of the Japanese pysche as much as of the country's attitude to speculation. Simply put, the Japanese rig their market to benefit insiders. The Ministry of Finance acts to protect Japanese interests and is inimical to the notion of free trade. Al Capone is said to have avoided the stock market because he thought it was a racket. Japanese gangsters - the yakuza - took to the market with great enthusiasm. They even rented out thugs to keep manners on shareholders during the annual general meetings of public companies - a practice which might be welcomed by some Irish banks.
Jim Dunne is an Irish Times journalist