overview
orientation
tulips
steam age
jazz & plastic
property
fleece
inflections
snapshot
dotcoms
telcos
peaks
au bubble
actors
media
fiction
accounting
regulators
clean-ups
bubble 2.0?
sinobubble
landmarks
related
Guides:
Economy
Governance
Networks
eCapital
related
Profiles:
Rail
Broadcast
|
tulips
This page offers context by considering some past booms,
bubbles and crashes.
It covers -
introduction
The pre-1840s bubbles have been criticised as festivals
of excess that left nothing behind except tears, bad law
and anecdotes - in contrast to the railway bubbles that
littered European and North American landscapes with rolling
stock, telegraph lines and railway cuttings, much subsequently
put to good use.
tulip time
Dutch 'Tulipmania' has attracted attention as the classic
example of speculative excess, with absurd prices paid
for derivatives and a consequent crash that supposedly
devastated a flourishing economy.
Clarence Mackay's much-quoted but very impressionistic
1841 Extraordinary Popular Delusions & the Madness
of Crowds claimed that
In
1634 the rage among the Dutch to possess tulip bulbs
was so great that the ordinary industry of the country
was neglected ... the population, even to its lowest
dregs, embarked in the tulip trade
so
that by early 1637 one bulb was reportedly
sold for 6,700 guilders.
That was supposedly forty times greater than the average
income and equivalent to the price of "a house on
Amsterdam's smartest canal, including coach and garden".
In reality the situation was more complicated: many people
did not participate in the speculation, others did some
momentarily and on a small scale.
Peter Garber's crisp Famous First Bubbles: The Fundamentals
of Early Manias (Cambridge: MIT Press 2000) and Anne
Goldgar's Tulipmania: Money, Honor, and Knowledge
in the Dutch Golden Age (Chicago: Uni of Chicago
Press 2007) are useful correctives to some of the more
lurid accounts, including Simon Schama's The Embarrassment
of Riches: An Interpretation of Dutch Culture in the Golden
Age of Riches (London: Routledge 1987), Mike Dash's
Tulipmania (London: Gollancz 1999), Anna Pavord's
The Tulip (London: Cape 1999) and Trevor Syke's
engaging 2003 Tulips From Amsterdam (PDF).
Garber's work has been extended in Earl Thompson &
Jonathan Treussard's 2002 The Tulipmania: Fact or
Artifact? (PDF).
For an earlier panic see Reinhold Mueller's The Venetian
Money Market: Banks, Panics, and the Public Debt
(Baltimore: John Hopkins Uni Press 1997).
the Mississippi System
Financier John Law's Mississippi System has been characterised
as "the greatest economic experiment prior to the
Russian revolution of 1917". Unfortunately it was
an experiment that went wrong.
Law's Mississippi Company merged with the Louisiana Company,
which laid claim to one-third of what later became the
US.
A single corporate entity thus encompassed ownership of
the national debt and revenues from the state monopoly
on tobacco and other substances, operation of what served
as the French central bank, and expectations about development
in the land of opportunity.
the South Sea bubble
The origins of the UK South Sea Bubble date from 1698,
when the East India Company was persuaded to lend the
government some £2m at a rate of 8% (the standard
rate for government borrowing was 14%) in return for an
extension of trading privileges. The South Sea Company
was established in 1711 to exploit a monopoly of British
trade with South America and the Pacific Islands, expected
to be lucrative once war with Spain finished.
The 1713 Treaty of Asiento boosted share prices and revenue,
allowing the Company to advance £2 million to the
government in 1717 and two years later offered to take
over financing the national debt. The government agreed,
amid criticisms such that of Daniel Defoe in The Anatomy
of Exchange-Alley (1719), which alleged stock manipulations
-
Tis
a compleat system of knavery; that 'tis a trade founded
in fraud, born of deceit, and nourished by trick, cheat,
wheedle, forgeries, falsehoods, and all sorts of delusions.
Through incompetence or corruption the Company's directors
talked up the price of their shares, fuelling a speculative
bubble that featured claims about the discovery of new
technologies (including perpetual motion machines). In
January 1720 the price of a share of South Sea stock was
£128, climbing to £1,050 in June before collapse
in September, an event that ruined many speculators and
financial institutions. Sir Isaac Newton sold his £7,000
of stock for a 100% profit but reentered the market at
the top, losing £20,000 and lamenting "I can
calculate the motions of the heavenly bodies but not the
madness of people".
Perceptions of fraud were reflected in Swift's comment
in Gulliver's Travels (1726) that the Lilliputians
look
upon fraud as a greater crime than theft, and therefore
seldom fail to punish it with death; for they allege
that care and vigilance, with a very common understanding,
may preserve a man’s goods from thieves, but honesty
has no defence against superior cunning; and since it
is necessary that there should be a perpetual intercourse
of buying and selling, and dealing upon credit, where
fraud is permitted and connived at, or has no law to
punish it, the honest dealer is always undone, and the
knave gets the advantage.
The so-called Bubble Act of 1720 (not repealed
until 1825) banned all joint-stock corporations
without parliamentary or royal authority and is claimed
to have stifled economic development for years. The company
survived until 1750 and its annuities were traded until
1853.
studies
The UK South Sea Bubble and French Mississippi Company
Bubble have both attracted academic and popular studies.
These include John Carswell's The South Sea Bubble
(London: Cresset 1960), Virginia Cowles' The Great
Swindle: The Story of the South Sea Bubble (London:
Collins 1960) and Malcolm Balen's A Very English Deceit:
The Secret History of the South Sea Bubble and the First
Great Financial Scandal (London: Fourth Estate 2003).
Larry Neal's superb The Rise of Financial Capitalism:
International Capital Markets in the Age of Reason
(Cambridge: Cambridge Uni Press 1990) and PGM Dickson's
The Financial Revolution in England: A Study in the
Development of Public Credit 1688-1756 (London: Macmillan
1967) are strongly recommended. The three-volume Great
Bubbles: Reactions to the South Sea Bubble, the Mississippi
Scheme & the Tulip Mania Affair (London: Pickering
& Chatto ) edited by Ross Emmett collects contemporary
responses. For a more recent view see Richard Dale's The
First Crash: Lessons from the South Sea Bubble (Princeton:
Princeton Uni Press 2004).
The UK (and thereby its neighbours) have been affected
by a succession of Latin American bubbles. One work of
particular value is Frank Griffith Dawson's The First
Latin American Debt Crisis: The City of London and the
1822-25 Loan Bubble (New Haven: Yale Uni Press 1990).
next page
(steam age bubbles)
|
|
