Book Review: Supermoney: How Institutions, Incentives, And Illusions Took Over The Market

Image Source: Pexels Adam Smith’s Supermoney is not a traditional investing manual. Instead, it is a sharp, narrative-driven diagnosis of how modern financial markets evolved from individual ownership into an institutional, incentive-driven system—often detached from economic reality. First published in 1972, the book remains strikingly relevant for investors navigating today’s capital markets.At the heart of Supermoney is Smith’s central concept: “supercurrency”, which he defines as capitalized earnings transformed into tradable power.“All capitalized earnings count as Supercurrency,” Smith writes, arguing that public equity markets create a new layer of money beyond traditional definitions like cash or deposits.This supercurrency becomes the dominant medium through which corporations acquire other businesses, executives are compensated, and institutions accumulate influence.Smith expands the traditional money supply to include this phenomenon: “To this I suggest we add M3, Supercurrency… buy at book, sell at market, peel off some stock… and presto! M1, you are rich.”The result is a system where financial engineering, not productive investment, increasingly drives outcomes.One of the book’s most enduring insights is its critique of institutional behavior. Smith documents the steady displacement of individual investors by professional managers, noting that “the days of Mr. Smith in Portland, Oregon, selling to Mr. Jones in Portland, Maine, are mostly gone.”Institutions, armed with research staffs, computers, and scale, dominate trading—raising the bar for individual outperformance.Yet institutional dominance does not equate to prudence. Smith chronicles how performance pressure encouraged speculative excess, particularly during the late-1960s go-go era.He describes an environment where “you can’t have a market fever any more without some institutional help.” Universities, pension funds, banks, and mutual funds all chased returns, often abandoning traditional risk controls.The book also exposes how accounting practices enabled illusion. Smith explains how companies could inflate earnings by manipulating depreciation, inventories, pensions, or capitalization policies—“all done with an eye on the stock, not on what might be considered economic reality.”When perception finally collided with reality, the collapse was severe, wiping out many once-celebrated stocks.Ultimately, Supermoney is a warning about incentives. Markets may appear rational because “the game was measured in numbers,” but Smith reminds readers that behavior, psychology, and career risk often matter more than fundamentals.For modern investors, the lesson is clear: understanding capital markets requires understanding the structures—and motivations—that drive them.You can find a copy of the book here: Adam Smith – SupermoneyMore By This Author:This Week’s Deep-Value Stocks: Financials And Cyclicals Dominate The ScreenCal-Maine Foods, Inc.: A Deep Value Commodity BusinessAlphabet Inc. - Our Calculation Of Intrinsic Value