For Canadian stock exchanges, the Bre-X mining scandal shows the truth in Mark Twain’s description of a gold mine as “a hole in the ground with a liar standing next to it.” Author Christopher Armstrong, a York University historian, traces the rise and fall of rogues and regulators from the birth of the Toronto Stock Exchange in the 1870s to the beginnings of the Second World War. As an academic history, the book is thorough, its evidence well documented. As applied economics, the work is provocative. For the general reader, however, Blue Skies and Boiler Rooms is likely to be a snore.

The thread of the book is the battle between crooks and securities cops. Armstrong doesn’t urge regulatory reform – nor could he in a work that does not examine the last 57 years of securities law. Yet implicit in his narrative is a belief in the virtue of regulation. He says, correctly, the government of Mackenzie King was “a very late and reluctant convert to the notion of stimulating the economy through expansionary fiscal policies….” Would Armstrong prefer the federal government to have increased government debt faster?

That would have resulted in a flood of bonds to pay for spending, a resulting increase in interest rates, followed by reduced capital spending and a decrease in jobs. Alternatively, if the federal government had just printed money to reflate the economy, it would have been seen as tempting the fate of the Weimar Republic. The latter’s printing presses caused an inflation that ended in 1923 with the mark at a six billionth of its 1918 value. One can imagine that Canadian investors, haunted by the spectre of hyperinflation would have rushed to sell dollars for gold, resulting in a collapse of the currency. Mackenzie King, prudent to a fault, wouldn’t have risked it.

At the end of the book, Armstrong asks why Canadians are avid buyers of life insurance yet eager participants in idiotic stock market gambles. His answer: we’re serial suckers lured by the prospect of penny stocks turning into serious money. That’s a diagnosis, not a cure.