Early Speculative Bubbles & Increases in the Money Supply by Douglas E. French
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Overview: The housing bubble was hardly the first in human history. What has eluded historians is the same issue that eludes commentators today — the underlying cause of bubbles.
Early Speculative Bubbles is the first (and only) book to solve the mystery of the most famous bubble in world history — Tulipmania in the 17th-century Low Countries. It is a legendary event but explanations have been lacking. People blame irrational exuberance, free markets, and an unleashed aristocracy.
Douglas French takes a different route. He follows the money to prove that the bubble resulted from a government intervention that dramatically exploded the money supply and fueled the tulip-price bubble — not altogether different from modern bubbles.
This book was French’s master’s thesis written under the direction of Murray N. Rothbard. It examines three of the most famous speculative bubble episodes in history through the lens of Austrian Business Cycle Theory.
Although each of these episodes is well documented, this book examines the monetary interventions that engendered each of these events showing that not only were the Mississippi Bubble and the South Sea Bubble caused by government meddling, but so was Tulipmania.
Tulipmania was unique in that it was the sound-money policy of the Dutch combined with free-coinage laws that led to an acute increase in the supply of money and fostered an atmosphere that was ripe for speculation and malinvestment, manifesting itself in the intense trading of tulip bulbs.
The author examines not only the Mississippi Bubble but also the life and monetary theories of its architect, John Law. Joseph T. Salerno calls Law the world’s first macroeconomist; he implemented a Keynesian monetary system in France nearly two hundred years before Milton Keynes was born. At the same time, across the English Channel, a nearly bankrupt British government looked on with envy at Law’s system, believing that he was working a financial miracle. It was anything but this, and investors in both countries were devastated.
Although these episodes occurred centuries ago, readers will find the events eerily similar to today’s bubbles and busts — low interest rates, easy credit terms, widespread public participation, bankrupt governments, price inflation, frantic attempts by government to keep the booms going, and government bailouts of companies after the crash.
When we will learn? We first have to get cause and effect in history straight. This book is an excellent contribution to that effort.
Genre: Non Fiction Business & Money > Economics > Macroeconomics
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