In lieu of an abstract, here is a brief excerpt of the content:

Reviewed by:
  • The Equity Culture: The Story of the Global Stock Market
  • George David Smith
B. Mark Smith. The Equity Culture: The Story of the Global Stock Market. New York: Farrar, Straus and Giroux, 2003. xiii + 344 pp. ISBN 0–374–28175–0, $25.00 (cloth).

The overarching question for B. Mark Smith is how equities markets— historically little more than risky gambles for insiders, speculators, and fools—have become central to the operation of world financial markets. Or to put it another way, once mere indicators of economic performance, equity markets have become so pervasive, so active, so global, that they now directly influence the economic performance of nations in ways that bind their welfare ever more closely together. Although the book does not say this directly, the implications are clear: this remarkable outcome has neither been a linear progression nor inevitable. The state of today's global equity culture is the product of a fortuitous confluence of political, social, economic, and intellectual events.

Essentially chronological in approach, The Equity Culture opens with a condensed history of equity investment from ancient Roman times through the establishment of the Dutch and British financial institutions that laid the foundation for the modern financial markets at the end of the seventeenth century. Several sub-themes are laced through the narrative, the most challenging with regard to the recurrent nature of "bubbles," which, the author argues, are more rational phenomena than suggested by Charles Kindleberger's Manias, Panics, and Crashes: A History of Financial Crises (4th ed., 2001), the classic and authoritative work on the subject.

There has been international trade in equities going back centuries, the strength of which has varied with the vicissitudes of war, politics, and depression. But the history of modern equity markets is essentially that of Anglo-American finance, at least until very recently. Smith provides sensible structural explanations as to why Japanese and German equity markets lagged, and in the end, he sees that emerging equity markets in the rest of the world succeed insofar as they mimic Anglo-American practice. While Smith, a former partner [End Page 151] at Goldman Sachs, clearly is a free-market champion, his chapters on the boom-bust nature of emerging markets highlight the point that poorly regulated markets are dangerous to the health of investors and economies alike.

The book is chock full of useful, lucid discussions of the practical impact of academic research, which has given us modern "portfolio theory" and "efficient market" and "behavioral" constructs for explaining the movements and predictability (or lack thereof) of markets. As Peter Bernstein does in more technical language in Capital Ideas: The Improbable Origins Of Modern Wall Street (1993), Smith makes the case that during the course of the twentieth century, the cause-and-effect relationship between theory and practice in the huge growth and geographical expansion of equity markets was direct, dynamic, and profound. Professors, take comfort.

Overall, B. Mark Smith has synthesized the important literature on equity market history into a highly readable volume that will certainly appeal to lay readers and to academics not already familiar with the field. The Equity Culture is high-order journalistic account of the development of global equity markets. There may be no news here for the academic financial specialist, but the book succeeds admirably in making financial concepts and terms of art accessible to both lay readers and non-financial academics. The book might well serve, in whole or in part, as reading for a business school or college courses on the history of finance.

George David Smith
New York University
...

pdf

Share