The financial crisis that has engulfed the world in the past two years is not just, or perhaps even mainly, a tale of greed run riot; it is the result of an idea that failed. That idea, which over the past four decades became the dominant belief among those generally regarded as the savviest participants in the financial system, was that the market is rational and efficient. So much for that.

The idea first took hold among a generation of economists repelled by the heavy government oversight of financial markets imposed during the New Deal era and by evidence of widespread irrational behaviour by participants in these markets. At the same time they were excited by the advances in mathematical economics and the computing power that allowed market data to be analysed like never before.

Justin Fox's description of how the idea evolved and conquered is fascinating and entertainingly told. A statement of investor impotence-an attack on the bold ones ("idiots", said Larry Summers, a distinguished economist) who think they can beat the market-soon became a near-religious belief. Nobel-laureate preachers, such as Milton Friedman and Merton Miller, proclaimed from the pulpits of the University of Chicago that the market could do no wrong.

Somewhere along the way, what started as a critique of the wrong ways people tried to profit from the market turned into a source of new techniques for making money. The "efficient market hypothesis", the Nicene Creed of the market rationalists, inspired a wave of innovative financial products, such as derivatives and securitised subprime mortgages, that believers claimed would allow users to exploit the wonders of the market. This gospel was embraced so enthusiastically by the markets that these products soon accounted for trillions of dollars of trades. Then it turned out that the market was not rational after all. Trillions were wiped out and, as one of the cheerleaders for rationality, Alan Greenspan, the former chairman of the Federal Reserve, put it, "the whole intellectual edifice collapsed."

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