The Risk That Built America
Speculation isn’t a bug in America’s economic code, but a crucial component part of the engine, writes Andrew Ross Sorkin.
Speculation as engine
When people speak of the 1929 crash, they often speak of sin, greed, hubris, irrational exuberance. They talk about bucket shops and stock pools, ticker tape and margin calls. At the heart of their indignation, always, is speculation.
The popular narrative of that era goes like this: America lost its head, bet its future on the roulette wheel of Wall Street and paid the price with blood and bread lines. It’s a neat morality play, and it isn’t wrong.
Still, it misses something essential: Speculation didn’t destroy America. Speculation built America.
That may sound heretical, especially since we’ve just emerged from previous speculative manias — the GameStop trading frenzy, crypto, NFT absurdities, SPACs gone awry — only to end up in one of the potentially biggest in decades, the A.I. boom.
My point is not that investors should embrace the latest whims of the market without caution or guardrails. But if we’re honest, speculation isn’t some bug in America’s economic code. It’s a crucial component part of the engine. And it always has been.
I’ve spent nearly a decade studying the crash for my new book, “1929: The Greatest Crash in Wall Street History — and How it Shattered a Nation.” The men (and they were mostly men) of the era understood this viscerally. Charles Mitchell of the National City Bank, the most powerful financier of his era, believed that democratizing investment was essential to national progress. John J. Raskob, who masterminded the Empire State Building, was famous for saying that every American could become rich by investing $15 a week in stocks. They believed American capitalism was entering a new phase, powered by the masses.
They were wrong about many things: how much leverage was safe; how markets behave under stress; what happens when charlatans, including some running these institutions, manipulate the system.
But they weren’t wrong about the importance of speculation.
Speculation is often caricatured as gambling. But at its core, it is belief plus risk. It is the act of investing capital in a highly uncertain outcome, hoping for reward.
That means more than just buying meme stocks. It encompasses building skyscrapers, funding R&D, writing books, shooting movies and, yes, building or backing start-ups that might fail.
There is no innovation without speculation. No electric vehicles, no Covid vaccines, no OpenAI. No Amazon, Tesla, SpaceX or Moderna. No railroads in the 19th century or internet in the 21st. Every one of those started with a bet — sometimes one that seemed absurd at the time.
That doesn’t mean speculation is always virtuous. It can be reckless. It can be fraudulent. And when too many people speculate with borrowed money or in environments with no transparency, it can be catastrophic. That was what happened in 1929.
And it’s why, after 1929, we didn’t abandon speculation. We regulated it. The creation of the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, margin rules, disclosure requirements — these weren’t meant to stop risk-taking. They were designed to make it less toxic. They’ve mostly worked. (Though yes, they could still be improved upon.) The American Century followed.
Risk and reward are closely tied. So are speculation and disappointment. You don’t get one without the other.
The men of 1929 had a brash, sometimes dangerous optimism. They believed in building, and they wanted everyone in. This optimism, on its own, wasn’t the problem.