Published by EH.Net (May 2017)

Stuart Banner, Speculation: A History of the Fine Line between Gambling and Investing. New York: Oxford University Press, 2017. x + 335 pp. $30 (hardcover), ISBN: 978-0-19-062304-3.

Reviewed for EH.Net by Joseph Swanson, Kellogg School of Management, Northwestern University.

Stuart Banner, Professor of Law at UCLA, provides readers a rich legal history of speculation in U.S. history. This review is written from the perspective of financial economic development in that economic history.

One should view Speculation as a collection of topical essays arranged in temporal order with thoughtful linkages. The ordering of interest is land, commodity, and securities investments — with notable side trips. American economic history syllabi will gain from chapter inclusions. Financial economists will enjoy the richness of legal history. Regulators are given a wake-up call on the ineptitude of market constraints.

This reviewer has labored in the vineyards of U.S. economic history, corporate financial management and debt securities markets. That experience treats speculation as a risk choice (certain outlay with uncertain future, or spatial, return) wherein investments and speculation are often difficult or impossible to segregate. As we learn from Banner, political debate on the perception of risk selection has been flawed by seemingly well-intentioned “common sense,” confused legal tradition, and even archaic theology. Progressive political traditions are also seen to be rich with la loi des conséquences involontaires.

Modern psychology in the tradition of Kahneman and Tversky informs us that decisions involving risk are subject to biases which yield adverse outcomes. It is not surprising that a legal history of speculation includes an extensive collection of individuals seeking judicial restitution for failed expectations. In Animal Spirits, Akerlof and Schiller (2009) remind us of the dangers of poorly-formed expectations by groups of investors systematically neglecting contradictory information. It follows that modern economic history instruction will be served by attention to cognitive psychology and behavioral economics, using Speculation for telling stories.

From a modern perspective Banner shows marketplace participants struggling with contract definition and enforcement most often troubled by information asymmetries. His discussions of commodity futures contracts are informative, and in some cases even humorous (try Melchert v. American Union Telegraph, 1882).

Those interested in the ever present bubbles in equity markets will appreciate Banner’s essays with special attention to subsequent regulation. This reviewer would have appreciated more grounding in the history of capital markets (e.g., Neal, 2012).

Tragically, this fine volume has no bibliography. Worse yet the index is most incomplete — try to find Eric Posner, Robert McDonald, or even Stuart Banner! In an age of electronic publication construction this is an abominable flaw.


George A. Akerlof and Robert J. Schiller, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Princeton: Princeton University Press, 2009.

Daniel Kahneman, “Maps of Bounded Rationality.”

Larry Neal, A Concise History of International Finance: From Babylon to Bernanke. Cambridge: Cambridge University Press, 2016.

Joseph Swanson is Visiting Scholar in Finance, Kellogg School of Management, Northwestern University. His academic research interests are in applied econometrics, bond market pricing, economic history, and market design.

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