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Freaks of Fortune

Freaks of Fortune

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by Jonathan Levy

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Until the nineteenth century, “risk” was a specialized term: it was the commodity exchanged in a marine insurance contract. Freaks of Fortune tells how the modern concept of risk emerged in the United States. Born on the high seas, risk migrated inland and became essential to the financial management of an inherently uncertain capitalist future.


Until the nineteenth century, “risk” was a specialized term: it was the commodity exchanged in a marine insurance contract. Freaks of Fortune tells how the modern concept of risk emerged in the United States. Born on the high seas, risk migrated inland and became essential to the financial management of an inherently uncertain capitalist future.

Editorial Reviews

Publishers Weekly
A free-wheeling yet finely targeted history of capitalism and the modern financial industry, this study by Princeton historian Levy revolves around one specific concept—risk—while considering changing notions of liberty, justice, and human agency. Originally a mariners' term for the possibility of a ship's cargo being lost at sea, "risk" became a defining feature of American commercial life as the free market expanded and industrialization radically increased the pace of economic change. Although the casual reader may struggle with the book's specialist terminology and high-level concepts, Levy's humane vision and his extensive knowledge of American law, economics, and politics turn what could have been a dry treatise into a fascinating portrait of a society in flux. The author sheds light on such topics as corporate profit-sharing and the ethical ramifications of futures trading, underscoring the extraordinary power of the "economic chance-world" to create and destroy. Happenstance has always played an enormous role in human life, and the book explores society's reaction to the realization that individuals are increasingly defined by the possibility that their station in life will dramatically rise or fall. (Oct.)
Stanley L. Engerman
A most informative and imaginative study of the many roles played by risk and the attempts to offset it in American economic development. Levy's insights will substantially enrich our understanding of the American past.
Walter Licht
There is a brilliance of mind and story on every page of Levy's intriguing and innovative study of American capitalism. Risk taking and risk management illuminate the economic history of the United States in the nineteenth century and prompt invaluable reflection on our own risky financial times.
Jackson Lears
Freaks of Fortune is a bold new synthesis of nineteenth-century U.S. history. It illuminates the transformation of fundamental ideas about property, personhood, liberty, and security as an agrarian market society became a modern industrial state. In showing how an omniscient God yielded authority to the emerging statistical science of probability, Levy casts unprecedented light on the culture of American capitalism, past and present. This is a powerful and important book.
Wall Street Journal - James Grant
Levy sets himself the task of writing a history of economic and social risk in America in the 19th and early 20th centuries and, along the way, of showing that big government didn't just come from nowhere. It is an indispensable absorber, he suggests, of the shocks of the free market...Freaks of Fortune is a formidable work of scholarship--hats off to the author for the depth and breadth of his research.
New Republic - Benjamin M. Friedman
[Levy] not only tells a historical tale but also usefully illuminates the background to two first-magnitude issues confronting the American economy and American economic policy today: to what extent should the government, as opposed to private insurers, absorb the financial risks that we choose not to bear individually? ...And within the private sector, including not just private insurance companies but also for-profit firms in other industries, how do the rewards that firms' owners and senior managers receive relate to the risks that they are personally bearing? ...Anyone concerned with these important questions can usefully--and enjoyably--learn from Levy's fine-grained yet sweeping account...Corporate America has evolved a labor market that treats top executives differently from other people not just in the amount paid to them but in their exposure to downside risk. For three decades now, our society has been making the consequences of unemployment ever harsher for ordinary citizens. The theory, apparently, is that facing the disastrous consequences of losing one's job creates an incentive to work hard and well. At the same time, the theory applied to our top executives is that their incentive to good performance is not just the enormous upside potential of success but also the generous cushion provided in case of failure. Reading Jonathan Levy's book leaves no doubt which theory is more consistent with traditional American values.
The Nation - Stephen Mihm
Choice - D. A. Coffin
Engrossing account of the rise of the financial sector of the U.S. economy and the development of new tools for managing risk...Levy adds greatly to an understanding of risk in the American economy.
Library Journal
Levy (history, Princeton Univ.) provides a fascinating glimpse into the history of financial risk. Looking at the years between the start of the 19th century and the beginning of the Great Depression, he outlines a shift in philosophy regarding risk and responsibility as workers became dependent on new financial systems. Insurance, savings accounts, and even mortgage-backed securities proliferated in an attempt to shift risk off the individual and onto a larger institution. Levy traces the idea of risk back to its roots in maritime trade—its original definition as "a financial instrument for coping with the mere possibility of peril, hazard, or danger"—and demonstrates the unique relationship of the concept with capitalism. Each chapter tackles one aspect of this history, from stories that illustrate the rise of life and accident insurance at the end of the 19th century to the fall of the Freedman's bank in 1874. VERDICT Levy presents a well-written history of risk that is best suited to those interested in the history of capitalism and finance as well as the social history of the 19th-century working class.—Elizabeth Nelson, UOP Lib., Des Plaines, IL

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Harvard University Press
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Read an Excerpt

Chapter 5: Betting the Farm

In 1873, the German immigrants 30-year old Henry Ise and his new 18-year old bride Rosie migrated west from Iowa, settling on 160 acres of fertile Western Kansas soil. A veteran, Henry had earned the claim outright fighting for the Union Army in a series of nasty campaigns in Tennessee, which left him with a creaky shoulder. After the Civil War, the freedpeople had failed to get their southern claims, as the finance capitalist Henry Cooke channeled their savings into the construction of the western railroad network. But for those willing to head west, even for the trickle of southern black “Exodusters,” the Homestead Act of 1862 had promised to open up millions of acres for settlement, in clean rectangular 160-acre quarters.

Henry and Rosie Ise would succeed in raising a thriving commercial farm. But in 1887, needing $363 to pay a quack doctor to care for their youngest son John, stricken with polio, the couple decided to mortgage their homestead to the Pennsylvania Mortgage Company. It was a fateful decision. According to John’s memoir of his childhood experience, the mortgage became the “relentless master of the family destinies.” The Ise mortgage entered into a new stream of financial circulation—the “western mortgage market.”

Indeed, after 1870 there emerged an American market in what are now called “mortgage-backed securities.” New financial intermediaries purchased mortgages on new western farms, guaranteed them, and then mostly passed them through to private and institutional investors in the east, or packaged them together into bonds for public sale. Capital consequently flowed westward while wheat, corn, and other staples flowed eastward. By 1890, homesteaders had mortgaged somewhere between 30 and 40 percent of all farm acreage west of the Mississippi River and east of the Rocky Mountains. During the 1880s the “western farm craze” had spread like a fever among the eastern investing public. But after a series of droughts and the financial panic of 1893 the market collapsed. Yet, by then the logic of American farming had been utterly transformed. The farmer’s distinctive hedge—his land—was lost. The countermovement of landed independence was over.

After the Civil War, as before, many commercial farmers migrated west in pursuit of the economic and existential rewards of a landed independence. Henry and Rosie Ises’s lone-stated aspiration was to become “independent.” Clearly, some had other, more narrow goals in mind. There were farmers, for instance, who put all possible acreage into wheat, the great western staple, in search of a short-term upside rather a sense of long-term economic security. They hoped that rain would follow the plow, and that providence or chance would dispense a friendly fate, rewarding their labors. The 1880 western guidebook Where to Go to Become Rich devoted a chapter to plains farming, next to another on southwestern gold prospecting.

Meet the Author

Jonathan Levy is Associate Professor of History at the University of Chicago.

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