Your first book, Booms and Depressions by Irving Fisher?

Well, basically, it’s a very good account of how the Boom occurred and how the Great Depression followed. I think it’s a historical document, so I list it as one of my favourite books. It was written after the Depression, in 1932, and the author, Irving Fisher himself, essentially went bust. At that time I think he was a Professor at Princeton. He was very optimistic about America and about the economy, and so he had long positions in equities. But during the crash he suffered badly: he had mortgages on his house and so he had a financial problem. But because he was such a well-known economist, I think, Princeton bailed him out. Fisher developed this debt-deflation theory. I mean, he wasn’t a stock market timer, but more among the best economists of the 20th century. I would rank him along with Schumpeter as one of the great economists. He was to a large extent a monetarist, but he realised that expected money supply growth and debt growth would lead to problems. He didn’t realise this while it was happening, but afterwards at least he realised it. In 1930 , before the Depression, but just after the crash of 1929 had happened, he wrote The Stock Market Crash And Afterwards, and at that stage he hadn’t realised it fully. When he wrote that book the stock market was recovering and he was explaining that basically the valuations were very low and that the outlook was still favourable. It’s only in 1932 that he realised that there had been a debt overhang, but he describes very well in both books the excesses that had happened before the crash.

Are you choosing these books partly because they mirror the excesses that have just happened?

Yes exactly. I mean Fisher describes how investment banks began to sell securities just to make a profit out of selling them, and so forth, and how the public was borrowing money on instalment credit. The whole debt bubble was very well explained in Booms and Depressions.

And how did the boom before the 1929 crash mirror the bubble we’ve just seen exploding?

Well, basically, excessive speculation, excessive money creation as a result of artificially low interest rates, and also the globalisation that took place at that time, which essentially then led to one country after another falling down during the Depression. Fisher shows how trade contracted at the time; Booms and Depressions is a historical document: it mirrors very well what happens during financial bubbles.

What about the Bresciano Turroni book, The Economics of Inflation? It was written about the Weimar Republic hyperinflation, wasn’t it?

Correct. Bresciano Turroni was an employee at the time, I think, in Germany, and he followed this hyperinflation development very closely and he describes the impact of inflation on equities, on real estate, on wages and on the exchange rate.

These first two books you’ve chosen deal with quite severe economic problems. Do you think it’s necessary to look into severe economic problems to understand investing on the whole or is it only important to look into them today?

I think for investors it’s very important to have a historical background about how booms occur and how depressions then ensue. You can have a depression that is deflationary and you can have a depression that is inflationary. In other words, real incomes go down and standards of living go down, but prices go up. And by printing money, the central banks think they can control the destiny of an economy, when in fact an economy moves quite differently from the will of central bankers. I mean, this is a fact of life that we have cycles: we have excursions into prosperity and excursions into depression. The excursions into prosperity can be inflationary or can be disinflationary or deflationary and the excursions into depression can be deflationary or inflationary.

You say that The Economics of Inflation is the best book ever written about the mechanics of inflation. Why is that?

Well, because many people think that in inflationary times stocks go up when, in reality, in nominal terms, equities do go up but in real terms, or in gold terms, or in a strong currency term, they go down. And it also analyses precisely the social consequences of high inflation and obviously they’re not very encouraging. I would say for an investor today, if he reads it and doesn’t understand the implications he shouldn’t read at all.

Can you tell me about Sidney Homer’s A History of Interest Rates?

Well, I think investors should realise that interest rates move in long cycles and this is fairly well documented in Homer’s history of interest rates. I think that in general – because I go to lots of seminars and so forth – investors and professional fund managers may have a CFA, but they have no clue about history. I think it’s a very good book, a historical document about how interest rates have moved over thousands of years. It has some interesting observations. Sidney Homer was an academic and a very intelligent and knowledgeable man, so I think that everybody, everybody who is in investment, should read this book.