Book Review: Panic, Prosperity, and Progress

Panic, Prosperity, and Progress: Five Centuries of History and the Markets. 2014. Timothy Knight.

The financial crisis of 2008 has led to a renewed interest in the history of financial markets. Are there lessons to be learned from past crises and the opportunities they created? Timothy Knight addresses this question in Panic, Prosperity, and Progress: Five Centuries of History and the Markets. Knight, a money manager and founder of the trading blog Slope of Hope, takes the reader through 500 years of turmoil, beginning with tulip mania in Holland and ending with the Great Recession.

The book recounts 24 tumultuous episodes, focusing mainly on the United States. Many of the events Knight covers are worthy of entire books, and so he is unable to delve into any of them in great detail. The limited number of pages allocated to each topic allows the reader to move quickly through each chapter. Although this brevity may make the book more readable for some, it also renders the book less interesting for those who desire a deeper understanding of the events. One of the book’s oddities is the lack of even a single footnote or reference, which impedes the reader who wishes to research the topics or verify the facts. Furthermore, numerous photos and graphs lack any credits or sources.

Like every author who writes about a series of historic events, Knight spent a great deal of time deciding which events to include in the book. In the preface, he writes that he was surprised to find that some of the events he believed had significantly influenced the financial markets — such as the Kennedy assassination in 1963 and the London subway bombing in 2005 — had virtually no impact whereas others that he did not initially consider including, such as the 1998 Russian debt crisis, turned out to be monumental.

Knight finds a number of common themes in the historic events he covers. Although the problems leading up to a crisis often seem obvious in hindsight, the severity of the problems can be less apparent before the crisis, as with the savings-and-loan scandal, the internet bubble, and the collapse of the subprime mortgage market. Knight also notes how one event can trigger another, seemingly unrelated one. For example, Knight contends that the Asian currency crisis, which was resolved by early 1998, likely worsened the Russian debt crisis later that summer as investors fled Russian assets while the Asian crisis was still fresh in their minds. Other seemingly unrelated episodes that Knight writes about include the Mississippi Scheme and the South Sea Bubble, as well as the energy crisis and the mania surrounding precious metals in the 1970s.

According to Knight, what separates a historically important event from the commonplace is that the event either has a lasting impact or marks a key inflection point in the course of human events. He covers both positive and negative developments. Positive ones tend to follow “a long base of inactivity,” such as extended periods of little or no economic growth, but occur in “a supportive and constructive/legislative environment.” Negative developments are characterized by “proximal troubles”; this phrase refers to the ability of such events as the Great Depression and the Latin American debt crisis to spread swiftly.

Panic, Prosperity, and Progress is more than just a history of the US financial market. It discusses international relations as well as certain historical periods that set the stage for future financial events. Such topics as the American Revolution, the American Civil War, the Roaring Twenties, and the fall of the Soviet Union, which Knight covers, are not typically included in discussions of financial markets. Although he focuses primarily on crises, Knight also looks at times of prosperity, such as the post–World War II boom in the United States, the miraculous economic growth of Japan as it changed from an agrarian society to a producer of electronics and automobiles, and the Reagan revolution.

One especially interesting chapter ventures beyond banking and economic crises to examine the geopolitical dimensions of the energy crisis of the 1970s and its aftermath. Knight discusses some of the tensions in the Middle East, including the Iran–Iraq War and Iraq’s invasion of Kuwait, which led to US involvement in the region. Today, unrest in the Middle East and volatile oil prices continue to be a major concern for world financial markets.

Knight’s gift for writing allows him to turn historic events into fascinating stories. Nowhere is this more apparent than in his chapter on the precious metals market. It features a remarkable cast of characters, including Colonel Muammar Gaddafi of Libya, Armand Hammer of Occidental Petroleum, King Faisal of Saudi Arabia, the billionaire Hunt family, and King Farouk of Egypt. Knight begins with a brief history of gold in the United States following the Great Depression and then moves quickly into the story of the Hunt family’s attempt to corner the silver market. That escapade made the Hunts one of the richest families in the world but ultimately led to their financial ruin. The chapter concludes with a look at the bull market for gold and a rare double eagle gold coin once owned by King Farouk.

Panic, Prosperity, and Progress delivers a fascinating look at some of the most famous episodes in the history of world financial markets. Reading about these historic events may help investors recognize potential opportunities and future crises. Those who are interested in an overview of the most storied incidents in financial market history will find this book an enjoyable read. Those who need a starting point for serious research on these topics or are interested in more details on these episodes may want to look elsewhere.

More book reviews are available on the CFA Institute website or in the Financial Analysts Journal.

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