Skip to main content
SpringerLink
Log in
Book cover

Manias, Panics, and Crashes pp 53–77Cite as

Palgrave Macmillan

Speculative Manias

  • Chapter

Abstract

The word ‘mania’ suggests a loss of a connection with rationality, perhaps mass hysteria. The loss of connection with rationality reflects that the investors, lenders, borrowers, and the bank and financial regulators fail to recognize that a crash always is the end game for the mania. Economic history is replete with manias that involved the construction of canals, railroads, and homes and commercial properties as well as manias that involved stock prices. Economic theory assumes that men and women are rational — and hence manias would not develop. The rationality assumption is disconnected from the observation that manias occur episodically. This chapter focuses on the increases in the investor demand for a particular type of security or asset and the next chapter is centered on increases in the supply of credit.

This is a preview of subscription content, log in via an institution.

eBook
USD   24.99
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever

Tax calculation will be finalised at checkout

Purchases are for personal use only

Learn about institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Notes

  1. John F. Muth, ‘Rational Expectations and the Theory of Price Movements’, Econometrica, vol. 29 (July 1961), pp. 313–35.

    Google Scholar 

  2. Harry G. Johnson, ‘Destabilizing Speculation: a General Equilibrium Approach’, Journal of Political Economy, vol. 84 (February 1976), p. 101.

    Article  Google Scholar 

  3. Milton Friedman, ‘The Case for Flexible Exchange Rates’, in Essays in Positive Economics (Chicago: University of Chicago Press, 1953).

    Google Scholar 

  4. Milton Friedman, ‘Discussion’ of C. P. Kindleberger, ‘The Case for Fixed Exchange Rates, 1969’, in Federal Reserve Bank of Boston, The International Adjustment Mechanism (Boston: Federal Bank of Boston, 1979), pp. 114–15.

    Google Scholar 

  5. See Fernand Braudel, The Structures of Everyday Life, vol. 1 of Civilization and Capitalism: the Limits of the Possible, trans. Siân Reynolds (New York: Harper and Row, 1981), pp. 220, 221, 281, 315, 318, 335, etc.

    Google Scholar 

  6. H. M. Hyndman, Commercial Crises of the Nineteenth Century (1892; 2nd edn [1932], reprinted, New York: Augustus M. Kelley, 1967), p. 96.

    Google Scholar 

  7. Walter Bagehot, Lombard Street: a Description of the Money Market (1873; reprint edn, London: John Murray, 1917), p. 18.

    Google Scholar 

  8. Sir John Clapham, The Bank of England: a History (Cambridge: Cambridge University Press, 1945), vol. 2, p. 326.

    Google Scholar 

  9. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776; reprint edn, New York: Modern Library, 1937), pp. 703–4.

    Google Scholar 

  10. Alfred Marshall, Money, Credit and Commerce (1923; reprint edn, New York: Augustus M. Kelley, 1965), p. 305.

    Google Scholar 

  11. For relevant studies, see Frederic S. Miskin, ‘Asymmetric Information and Financial Crises: a Historical Perspective’, in R. Glenn Hubbard, ed., Financial Markets and Financial Crises (Chicago: University of Chicago Press, 1991), pp. 69–108;

    Google Scholar 

  12. Thomas Lux, ‘Herd Behavior, Bubbles and Crashes’, Economic Journal, vol. 105 (July 1995), pp. 881–96.

    Article  Google Scholar 

  13. Gustav LeBon, The Crowd: a Study of the Popular Mind (London: T. Fisher Unwin, 1922).

    Google Scholar 

  14. Charles Mackay, Memoirs of Extraordinary Delusions and the Madness of Crowds (1852; reprint edn, Boston: L. C. Page Co., 1932).

    Google Scholar 

  15. John Carswell, The South Sea Bubble (London: Cresset Press, 1960), p. 161.

    Google Scholar 

  16. David Cass and Karl Shell, ‘Do Sunspots Matter?’ Journal of Political Economy, vol. 91, no. 2 (April 1983), pp. 193–227.

    Article  Google Scholar 

  17. Irving Fisher, The Purchasing Power of Money: Its Determination and Relation to Credit, Interest and Crises, 2nd edn (New York: Macmillan, 1911), esp. chap. 1, dealing with crises;

    Google Scholar 

  18. Knut Wicksell, Interest and Prices (London: Macmillan, 1936) (first published 1898).

    Google Scholar 

  19. Henrietta M. Larson, Jay Cooke, Private Banker (Cambridge, MA: Harvard University Press, 1934).

    Google Scholar 

  20. John Berry McFerrin, Caldwell and Company: a Southern Financial Empire (Chapel Hill: University of North Carolina Press, 1939; reprint, Nashville: Vanderbilt Press, 1969).

    Google Scholar 

  21. Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: W. W. Norton, 1976), pp. 90–3.

    Google Scholar 

  22. Joan Edelman Spero, The Failure of the Franklin National Bank: Challenge to the International Banking System (New York: Columbia University Press, 1980).

    Google Scholar 

  23. George W. Van Vleck, The Panic of 1857: an Analytical Study (New York: Columbia University Press, 1953), p. 31.

    Google Scholar 

  24. R. C. O. Matthews, A Study in Trade-Cycle History: Economic Fluctuations in Great Britain, 1832–1842 (Cambridge: Cambridge University Press, 1954), pp. 49, 110–11;

    Google Scholar 

  25. M. C. Reed, Investment in Railways in Britain: a Study in the Development of the Capital Market (London: Oxford University Press, 1976).

    Google Scholar 

  26. Max Wirth, Geschichte der Handelskrisen, 4th edn (1890; reprint edn, New York: Burt Franklin, 1968), p. 480.

    Google Scholar 

  27. Ilse Mintz, Deterioration in the Quality of Bonds Issued in the United States, 1920–1930 (New York: National Bureau of Economic Research, 1951).

    Google Scholar 

  28. Benjamin Stein, ‘The Day Los Angeles’s Bubble Burst’, New York Times, 8 December 1984.

    Google Scholar 

  29. Homer Hoyt, One Hundred Years of Land Values in Chicago (Chicago: University of Chicago Press, 1933), p. 136.

    Google Scholar 

  30. Larry T. Wimmer, ‘The Gold Crisis of 1869: Stabilizing or Destabilizing Speculation under Floating Exchange Rates’, Explorations in Economic History, 12 (1975), pp. 105–22.

    Article  Google Scholar 

  31. Christina Stead, House of All Nations (New York: Knopf, 1938).

    Google Scholar 

  32. William Smart, Economic Annals of the Nineteenth Century (1911; reprint edn, New York: Augustus M. Kelley, 1964), vol. 2, p. 292.

    Google Scholar 

  33. D. Morier Evans, The History of the Commercial Crisis, 1857–1858, and the Stock Exchange Panic of 1859 (1859; reprint edn, New York: Augustus M. Kelley, 1969), p. 102.

    Google Scholar 

  34. Max Wirth, ‘The Crisis of 1890’, Journal of Political Economy, vol. 1 (March 1893), p. 230.

    Article  Google Scholar 

  35. P. L. Cottrell, Industrial Finance, 1830–1914: the Finance and Organization of English Manufacturing Industry (London: Methuen, 1980), p. 169.

    Google Scholar 

  36. A. C. Pigou, Aspects of British Economic History, 1918–25 (London: Macmillan, 1948).

    Google Scholar 

  37. J. S. Mill, Principles of Political Economy, with Some of Their Applications to Social Philosophy (1848; 7th edn, reprint edn, London: Longmans, Green, 1929), p. 709.

    Google Scholar 

  38. Maurice Lévy-Leboyer, Les banques européennes et l’industrialisation internationale dans la première moitié du XIXe siècle (Paris: Presses universitaires de France, 1964), p. 715.

    Google Scholar 

  39. Charles Wilson, Anglo-Dutch Commerce and Finance in the Eighteenth Century (Cambridge: Cambridge University Press, 1941), p. 25.

    Google Scholar 

  40. For a series from the early seventeenth century, see J. G. van Dillen, ‘The Bank of Amsterdam’, in History of the Principal Public Banks (The Hague: Martinus Nijhoff, 1934), p. 95.

    Google Scholar 

  41. For 1888, see W. Jett Lauck, The Causes of the Panic of 1893 (Boston: Houghton Mifflin, 1907), p. 39.

    Google Scholar 

  42. A. Andréadès, History of the Bank of England (London: P. S. King, 1909), pp. 404–5, see also p. 249.

    Google Scholar 

  43. O. M. W. Sprague, History of Crises under the National Banking System (1910; reprint edn, New York: Augustus M. Kelley, 1968), pp. 35–6.

    Google Scholar 

  44. Ronald I. McKinnon, Money and Capital in Economic Development (Washington, DC: Brookings Institution, 1973).

    Google Scholar 

  45. Carlos F. Diaz-Alejandro, ‘Goodbye Financial Repression, Hello Financial Crash’, Journal of Development Studies, vol. 18, no. 1 (Sept–Oct 1985), pp. 1–24.

    Google Scholar 

  46. Ronald I. McKinnon and Donald J. Mathieson, ‘How to Manage a Repressed Economy’, Essays in International Finance, no. 145 (Princeton: International Finance Section, Princeton University, 1981).

    Google Scholar 

  47. See Geoffrey Serle, The Rush To Be Rich: a History of the Colony of Victoria (Melbourne: Melbourne University Press, 1971), pp. 285–7.

    Google Scholar 

  48. J. W. Beyen, Money in a Maelstrom (New York: Macmillan, 1959), p. 45.

    Google Scholar 

  49. William R. Scott, The Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720, 3 vols (London, 1922), as summarized by J. A. Schumpeter, Business Cycles (New York: McGraw-Hill, 1939), vol. 1, p. 250.

    Google Scholar 

  50. Hans Rosenberg, Die Weltwirtschaftskrise von 1857–59 (Stuttgart-Berlin: W. Kohlhammer, 1934), p. 114.

    Google Scholar 

  51. David Divine, Indictment of Incompetence: Mutiny at Invergordon (London: Macdonald, 1970).

    Google Scholar 

  52. C. P. Kindleberger, ‘The Economic Crisis of 1619 to 1623’, Journal of Economic History, vol. 51, no. 1 (March 1991), pp. 149–75.

    Article  Google Scholar 

  53. Bertrand Gille, La Banque et le crédit en France de 1815 à 1848 (Paris: Presses universitaires de France, 1959), p. 175.

    Google Scholar 

  54. Honoré de Balzac, César Birotteau (Paris: Livre de Poche, 1972), esp. pp. 13–14.

    Google Scholar 

  55. Leland H. Jenks, The Migration of British Capital to 1875 (New York: Knopf, 1927), p. 34.

    Google Scholar 

  56. See also Stewart L. Weisman, Need and Greed: the Story of the Largest Ponzi Scheme in American History (Syracuse: University of Syracuse Press, 1999).

    Google Scholar 

  57. Guy Chaussinand-Nogaret, Les financiers de Languedoc au XVIIIe siècle (Paris: S.E.V.P.E.N., 1970), p. 146.

    Google Scholar 

  58. T. S. Ashton, Economic Fluctuations in England, 1700–1800 (Oxford: Oxford University Press, Clarendon Press, 1959), p. 151.

    Google Scholar 

  59. Arthur D. Gayer, W. W. Rostow and Anna J. Schwartz, The Growth and Fluctuation of the British Economy, 1790–1850 (Oxford: Oxford University Press, Clarendon Press, 1953), vol. 1, p. 92.

    Google Scholar 

  60. Ruth Benedict, Patterns of Culture (Boston: Houghton Mifflin, 1934).

    Google Scholar 

  61. See Herman van der Wee, The Growth of the Amsterdam Market and the European Economy (The Hague: Martinus Nijhoff, 1963), vol. 2, p. 202;

    Google Scholar 

  62. J. A. van Houtte, ‘Anvers’, in Amitore Fanfani, ed., Città Mercanti Dottrine nell’ Economia Europea (Milan: A. Guiffre, 1964), p. 311;

    Google Scholar 

  63. Simon Schama, The Embarrassment of Riches: an Interpretation of Dutch Culture of the Golden Age (Berkeley: University of California Press, 1988), pp. 347–50;

    Google Scholar 

  64. Ernest Baasch, Holländische Wirtschaftsgeschichte (Jena: Gustav Fischer, 1927), p. 240, quoting Büsch.

    Google Scholar 

  65. Clement Juglar, Des crises commerciales et leur retour périodiques en France, en Angleterre et aux Etats-Unis, 2nd edn (1889; reprint edn, New York: Augustus M. Kelley, 1967).

    Google Scholar 

  66. Theodore E. Burton, Financial Crises and Periods of Industrial and Commercial Depression (New York: D. Appleton, 1902), pp. 39–41.

    Google Scholar 

  67. See Kevin H. O’Rourke and Jeffrey G. Williamson, Globalization and History (Cambridge, MA: MIT Press, 1999), Figure 3. 1.

    Google Scholar 

  68. Francis W. Hirst, The Six Panics and Other Essays (London: Methuen, 1913), p. 2.

    Google Scholar 

  69. Michel Chevalier, Lettres sur l’Amérique du Nord, 3rd edn (Brussels: Société belge du librairie, 1838), vol. 1, pp. 261–2.

    Google Scholar 

  70. Louis Wolowski, testimony before Ministère des Finances et al., Enquête sur les principes et les faits généraux qui régissent la circulation monétaire et fiduciaire (Paris: Imprimerie imperiale, 1867), vol. 2, p. 398.

    Google Scholar 

  71. Fritz Stern, Gold and Iron: Bismarck, Bleichröder, and the Building of the German Empire (London: Allen & Unwin, 1977), p. 500, quoting Constantin Franz in 1872.

    Google Scholar 

  72. Oskar Morgenstern, International Financial Transactions and Business Cycles (Princeton: Princeton University Press, 1959), p. 550.

    Google Scholar 

  73. Robert Bigo, Les banques françaises au cours du XIXe siècle (Paris: Sirey, 1947), p. 262.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Booth School of Business, University of Chicago, USA

    Robert Z. Aliber (Emeritus Professor of International Economics and Finance)

  2. Massachusetts Institute of Technology, USA

    Charles P. Kindleberger (Formerly Ford Professor of Economics)

Authors
  1. Robert Z. Aliber
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Charles P. Kindleberger
    View author publications

    You can also search for this author in PubMed Google Scholar

Copyright information

© 2015 Charles P. Kindleberger and Robert Z. Aliber

About this chapter

Cite this chapter

Aliber, R.Z., Kindleberger, C.P. (2015). Speculative Manias. In: Manias, Panics, and Crashes. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-137-52574-1_4

Download citation

Publish with us

Policies and ethics

Search

Navigation