Speculative manias gather speed through expansion of money and credit. Most expansions of money and credit do not lead to a mania; there are many more economic expansions than there are manias. But every mania has been associated with the expansion of credit. In the last hundred or so years the expansion of credit has been almost exclusively through the banks and the financial system; earlier, non-bank lenders expanded the supply of credit. The tulip bubble mania of the seventeenth century developed with credits from sellers of the bulbs, a seventeenth-century version of ‘vendor financing’.1 John Law had his Banque Générale, later the Banque Royale, as his source of credit while the South Sea Company relied on the Sword Blade Bank. In 1763 credit expansion in Holland was financed by the Wisselruiti, or chains of accommodation bills from one merchant to another. The canal mania of 1793 in Great Britain was fed by spending facilitated by loans from many newly-established country banks to the entrepreneurs who were developing the canals.
- Interest Rate
- Central Bank
- Money Supply
- Stock Market Crash
- Bank Note
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
Axiom number one. Inflation depends on the growth of money. Axiom number two.
Asset price bubbles depend on the growth of credit.
This is a preview of subscription content, access via your institution.
Tax calculation will be finalised at checkout
Purchases are for personal use onlyLearn about institutional subscriptions
Unable to display preview. Download preview PDF.
Fueling the Flames: the Expansion of Credit
Peter Temin, The Jacksonian Economy (New York: W.W. Norton, 1969), pp. 79–82.
Jean Bouvier, Le Krach de l’Union Générale, 1878–1885 (Paris: Presses universitaires de France, 1960), pp. 129–34.
Milton Friedman, The Optimum Quantity of Money and Other Essays (Chicago: Aldine, 1969), pp. 1–50.
Jacob Viner, Studies in the Theory of International Trade (New York: Harper, 1937), pp. 232–3
J.G. Van Dillen, ‘The Bank of Amsterdam’, in History of the Principal Public Banks (The Hague: Martinus Nijhoff, 1934), pp. 79–123.
James S. Gibbons, The Banks of New York, their Dealers, the Clearing House and the Panic of 1857 (New York: D. Appleton, 1859), pp. 376–7.
Hyman P. Minsky, ‘The Financial-instability Hypothesis: Capitalist Processes and the Behavior of the Economy’, in C. P. Kindleberger and J. P. Laffargue, eds, Financial Crisis: Theory, History and Policy (Cambridge: Cambridge University Press, 1982), pp. 13–39.
Henry Kaufman, Interest Rates, the Markets and the New Financial World (New York: Times Books, 1986).
T.S. Ashton, ‘The Bill of Exchange and Private Banks in Lancashire, 1790–1830’, in T.S. Ashton and R.S. Sayers, eds, Papers in English Monetary History (Oxford: Oxford University Press, Clarendon Press, 1953), pp. 37–8.
Kurt Samuelsson, ‘International Payments and Credit Movements by Swedish Merchant Houses, 1730–1815’, Scandinavian Economic History Review, vol. 3 (1955), p. 188.
R.G. Hawtrey, The Art of Central Banking (London: Longmans, Green, 1932), pp. 128–9.
Herman E. Krooss, ed., Documentary History of Banking and Currency in the United States (New York: Chelsea House, 1969), vol. 1, p. 31.
Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776; reprint edn, New York: Modern Library, 1937), pp. 293–7.
R.G. Hawtrey, Currency and Credit, 3rd edn (New York: Longmans, Green 1930), p. 224.
Arthur D. Gayer, W.W. Rostow, and Anna Jacobson Schwartz, The Growth and Fluctuation of the British Economy, 1790–1850 (Oxford: Oxford University Press, Clarendon Press, 1953), vol. 1, p. 105.
John Carswell, The South Sea Bubble (London: Cresset Press, 1960), p. 171.
Federal Reserve System, Banking and Monetary Statistics (Washington, DC: Board of Governors of the Federal Reserve System, 1943), p. 494.
Alexander Dana Noyes, The Market Place: Reminiscences of a Financial Editor (Boston: Little, Brown, 1937), p. 353.
Jeffrey G. Williamson, American Growth and the Balance of Payments, 1830–1913: a Study of the Long Swing (Chapel Hill: University of North Carolina Press, 1964).
Alvin H. Hansen, Business Cycles and National Income (New York: W.W. Norton, 1957), chaps 13, 15.
A.C. Pigou, Industrial Fluctuations (London: Macmillan, 1927), pt. 1, chap. 7, and p. 274.
Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: W.W. Norton, 1976), passim.
Frederic S. Miskin, ‘Illiquidity, Consumer Durable Expenditure, and Monetary Policy’, American Economic Review, vol. 66 (September 1976), pp. 642–54.
Henry Simons, Economic Policy for a Free Society (Chicago: University of Chicago Press, 1948).
Roland Vaubel, ‘Free Currency Competition’, Weltwirtschaftliches Archiv, vol. 113 (1977), pp. 435–59.
Richard H. Timberlake, ‘Legislative Construction of the Monetary Control Act of 1980’, American Economic Review, vol. 75, no. 2 (May 1985), pp. 97–102.
Leland B. Yeager, ‘Deregulation and Monetary Reform’, American Economic Review, vol. 75, no. 2 (May 1985), pp. 103–7.
Lawrence H. White, Free Banking in Britain: Theory, Experience and Debate (New York: Cambridge University Press, 1984).
George Selgin, The Theory of Free Banking (Totowa, NJ: Rowan and Littlefield, 1989).
Charles Goodhart, The Evolution of Central Banks (Cambridge: Cambridge University Press, 1989).
Elmer Wood, English Theories of Central Banking Control, 1819–1858, with Some Account of Contemporary Procedures (Cambridge, Mass.: Harvard University Press, 1939), p. 147.
A. Andréadès, History of the Bank of England (London: P.S. King, 1909), pp. 356–7.
E. Victor Morgan, The Theory and Practice of Central Banking, 1797–1913 (Cambridge: Cambridge University Press, 1943), pp. 184–5.
O.M.W. Sprague, History of Crises under the National Banking System (1910; reprint edn, New York: Augustus M. Kelley, 1968), p. 241.
© 2005 Palgrave Macmillan, a division of Macmillan Publishers Limited
About this chapter
Cite this chapter
Kindleberger, C.P., Aliber, R.Z. (2005). Fueling the Flames: the Expansion of Credit. In: Manias, Panics and Crashes. Palgrave Macmillan, London. https://doi.org/10.1057/9780230628045_4
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-4039-3651-6
Online ISBN: 978-0-230-62804-5