STA Blog

Saturday’s FT Weekend Magazine’s (28/01/23) cover trumpeted a feature about ‘bulbs, Birkins, bored apes’ by Tim Harford. A provider of media content for print and radio, I find him engaging and surprisingly witty – for an economist. His premise: ‘What can the most famous historian of economic bubbles (who, it turns out, was wrong about most of it) teach us?’ Just the thing for our ‘’bubblicious’’ era, he suggests.

I read Mackay’s ‘Extraordinary Popular Delusions and the Madness of Crowds’ years ago, thoroughly enjoyed it and it’s one of the few books, together with John Kenneth Galbraith’s ‘The Great Crash 1929’, that I have reread more than once. What I hadn’t realised was that since its first publication in 1841 when he was just 27, Mackay’s book has been a best seller right through until today.

Harford notes that ‘newly wealthy Dutch merchants began to do what wealthy classes of people often do: they paid a lot of money for rare and beautiful things they could show off to their friends’. He sees contemporary parallels in today’s influencers brandishing their Birkin handbags and Bored Ape NFT digital artwork.

Tulip mania burst in February 1637, 200 years before Mackay started writing about the event. The author then went on to write about the South Sea bubble of 1720, again looking at things retrospectively, but then got wrapped up himself in Britain’s railroad frenzy of the 1840s, as did so many Victorians at that time. As in Holland, it was possible to by railway stocks in fractions, thus creating leverage. ‘Many investors would pay just 5 per cent downpayment to obtain a toehold in a share – it was called ‘’scrip’’. But if you’d paid £1 for scrip in a £20 share and then the £20 share doubled in price, well, you’d just made £20 on an initial payment of just £1. No wonder people got excited.’

Writing more recently on this subject are Quinn and Turner in ‘Boom and Bust’, Cambridge University Press 2020. They suggest that like fire, which needs fuel, heat and oxygen to burn, financial bubbles need marketability, speculation and cheap money. Pause for thought…