Some books about economics and finance
The study of money ... is one in which complexity is used to disguise truth or to evade truth, not to reveal it. John Galbraith
Economics and finance are very important. Yet there are few clear and precise books about these topics. Economic motivation is simple. Yet complexity is used to disguise truth or to evade truth, not to reveal truth. Most books on economics and finance are unnecessarily complex. But there are some exceptions.
The first book I would like to recommend is John Galbraith’s Money: Whence it came, Where it went. It describes human activities as they are. We learn so much from plain truth.
Michael Lewis is a fun writer. All his books are fun to read. His first book was Liar’s Poker. It is a book about investment banking. Many people with a background in science move into investment banking after reading Liar’s Poker. The book demystified the seemingly mysterious investment banking.
The third book I would like to recommend is The Big Short, also from Michael Lewis. It described how some outsiders sensed the upcoming collapse of the financial market and shorted the market in a big way, hence The Big Short. This book has been adapted into a movie, which is very fun and illuminating to watch.
The next book on my list is Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street by William Poundstone. It is an intricate story about information theory, gambling, investment practices and investment theories. It describes how a simple and universal idea guides many investors successfully. It also explains why the idea has so far failed to be integrated into the standard investment theory, despite its success in practice and its intuitive appeal. It is an intriguing story about some legendary figures in science, investment and the underworld.
The fifth book is Fischer Black and the Revolutionary Idea of Finance by Perry Mehrling. Fischer Black is my hero. The following paragraph is heartening for anyone who is interested in economics and finance but doesn’t have a formal training.
Fischer never took a course in either economics or finance, so he never learned the way you were supposed to do things. But that lack of training proved to be an advantage, Treynor suggested, since the traditional methods in those fields were better at producing academic careers than new knowledge. Fischer’s intellectual formation was instead in physics and mathematics, and his success in finance came from applying the methods of astrophysics. Lacking the ability to run controlled experiments on the stars, the astrophysist relies on careful observation and then imagination to find the simplicity underlying apparent complexity. In Fischer’s hands, the same habits of research turned out to be effective for producing new knowledge in finance. (p. 6)
The last book I would like to recommend is The End of Normal: The Great Crisis and the Future of Growth by James Galbraith. This is a recent book, published in 2014. In the first part of the book, Galbraith summarized the ideas of mainstream theories. If you are interested in those ideas, you can find references there. Then he put forward his own thoughts about future trajectories of our societies. It is a very insightful and a very readable book.
