Capital Ideas- A book review

The Evolution of Finance: A Review of Peter Bernstein's Capital Ideas The world of finance is ever-changing. Over the last century, the modern form of economic and financial theory as we see today has been developed and shaped by the minds of many. What we have come to know and accept as fact today were seemingly unheard of nearly fifty years ago. It is with the endless efforts of these like-minded scholars that gives us the opportunity to appreciate the tools and fundamentals we used today to capitalize on financial markets. Peter Bernstein is his book Capital Ideas: The Improbable Origins of Modern Wall Street, provides us with a framework and timeline of how economics and finance interact. He details the ideas and contributions that many men have made in the evolution of financial theory. Finance was neglected by economists for many years, Bernstein argued. Early financial economists struggled to gain the acceptance of their economic colleagues. Yet, throughout his book he explains the process of how many dedicated and improbable individuals, such as engineers, physicists, mathematicians, and eventually economists put their minds into the financial world. Bernstein begins the financial theory chronology with the question that has stumped stock market analysts for years: How can the movement of stocks be predicted? “This appetite for predicting stock prices is all the more striking, because a huge volume of academic research demonstrates that it is a devilishly difficult job not likely to get any easier” (Pg. 18). The scholar responsible for first tackling this question was Louis Bachelier, back in 1900. He completed a dissertation titled “The Theory of Speculation”, which attempts to explain why the stock market behaves as is does. He came up with a formula that “anticipated Einstein's research into the behavior of particles subject to random shocks in space” (Pg. 18). And he developed the the concept of stochastic processes, which analyze the random