Market froth is getting extreme. Just look at meme stocks.

I think the first response is a mistake and the second is a surefire way to lose money, as plunging meme-stock prices from Wednesday onward showed. The last, the idea that easy money is supporting the market, is plausible and well worth worrying about.

I don’t share concerns that the market is in an unusually bad state. This isn’t because I think the shares of GameStop, AMC Entertainment, BlackBerry et al ought to soar based on the tweeting of a meme by the long-dormant Roaring Kitty account. Instead, it’s based on history: It was ever thus. If I had to tweet a meme, it would be a clip of Captain Renault in “Casablanca," shocked—shocked!—to find gambling under way in the casino he frequents.

In the past, wild speculation took different forms, but there’s always been a split between traders trying to make a quick buck and investors wanting a share in the future profits of American enterprise. In fact, the presence of speculators is essential to encourage long-term investors to commit their cash. Without traders providing speculative liquidity, true investors would be unable to sell when they want—and as a result many would refuse to buy in the first place.

Sometimes the speculators have the upper hand, as when Jay Gould and other 19th-century robber barons fought over the rights to manipulate the stock of railroad companies, or when Jesse Livermore rigged stock prices to sucker in buyers so he could make—and eventually lose—millions of dollars in the 1920s.

One person could move markets in the 19th century. In the 1920s, the action moved to stock pools, groups of wealthy traders blamed by Congress for manipulation and used to justify the creation of the Securities and Exchange Commission. Now social media is used to coordinate buying. None care much about the actual business, one reason that long-term investors moan about them so much.

Here’s where we come to the second point. If you can identify when other people will rush to buy a stock, you want to buy it first, wait for it to go up as demand rises, then sell it to them, whatever its profit outlook. In other words, to “outwit the crowd," as economist and investor John Maynard Keynes wrote in 1936.

Meme stocks are the ultimate in trying to outwit the crowd. If you bought GameStop immediately after the Roaring Kitty account tweeted, you would have made a lot of money in a short period. But if you bought GameStop one of the other times that Reddit users were trying to revitalize the stock over the past three years, you’d have lost out badly—as you would if you bought first thing on Tuesday morning at $60, and sold on Thursday at less than half that.

Almost everyone thinks they’re smarter than others, but trading is hard. Being too early is often the same as being wrong. And if you’re late to the idea, you are the crowd. Just because some people made a lot of money doesn’t make it easy.

The rise of meme stocks in early 2021 came amid stock-market froth, with bubbles in SPACs, cannabis stocks, lossmaking tech, and solar and wind-related companies. They shared a common driver: Too much money in the economy had to go somewhere, and it went into stocks. Easy money was the driver of many past bubbles, too, and might again be propping up the stock market.

True, interest rates have jumped from zero to more than 5% in just two years. Yet, the economy’s been fine, unemployment has rarely been lower and broader financial conditions—which take account of saving, lending and asset values, as well as the Fed—are actually looser than before the rate rises began, according to the Chicago Fed. The S&P 500’s back at a record high, and has rarely been valued so highly by price to forward earnings and other measures.

When there’s a lot of money sloshing around the economy, it’s easy for new ideas to attract speculative money—and some of those ideas are just dumb. Maybe rates should be higher still.

Write to James Mackintosh at james.mackintosh@wsj.com