The history of making money ...

THE GREAT GAME

By John Steele Gordon

Scribner

319 pp., $25

Many people probably find Wall Street, with its arcane language of "selling short" and "P/E ratios," to be the same sort of "riddle wrapped in a mystery inside an enigma" that Churchill found Russia to be. So John Steele Gordon's attempt to explain the rise of Wall Street to a general audience in "The Great Game" is welcome.

Several events were crucial to this rise. First, the opening of the Erie Canal in 1825 spurred New York City to its status as the leading commercial center on the East Coast. Next, the development of the telegraph in the 1840s, which allowed rapid transmission of prices, promoted the concentration of the nation's financial markets in New York. Wars also played a major role. The Civil War forced the US government to raise unprecedented amounts of revenue, giving a permanent boost to the volume of activity on Wall Street.

Also informative are Gordon's portrayals of Wall Street's rogues' gallery - the speculators and outright crooks who have populated the financial markets.

Gordon weaves his story with considerable skill, sustaining a flowing narrative even when compressing a decade or more into a few paragraphs. He also moves smoothly from describing broad historical events to detailing their specific impact on the growth of Wall Street.

His narrative skill, however, is not always matched by his economic analysis. He wrongly attributes the Panic of 1837 to the policies of President Andrew Jackson; economic historians ascribe it primarily to international factors. The Great Depression is said to be "caused almost entirely in Washington" by the Smoot-Hawley Tariff and the tight monetary policies of the Federal Reserve System. In fact, the impact of Smoot-Hawley was minimal, due to the small share of imports and exports in the US economy. Economist Peter Temin has shown there is no evidence of tight money policy by the Fed prior to late 1931, nearly two years into the Depression.

Also disappointing is Gordon's treatment of Wall Street's recent past. He has nearly nothing to say about Wall Street's controversial role in the globalization of the world economy or the growth of transnational corporations.

Nevertheless, Gordon does unwrap a sizable part of the Wall Street riddle. His achievement in weaving a coherent and concise narrative out of a tremendous mass of historical material makes this book worth reading.

*Mark Wylie teaches economics at Pasadena City College, Calif.

(c) Copyright 1999. The Christian Science Publishing Society