Manias, Panics, and Crashes: A History of Financial Crises
by Charles P. Kindleberger
Charles P. Kindleberger's "Manias, Panics, and Crashes" offers a historical examination of financial crises, emphasizing a narrative approach over quantitative analysis. The work posits that financial instability is a recurring feature of capitalist economies, driven by human behavior and systemic vulnerabilities rather than solely exogenous shocks. A central theme is the cyclical nature of market bubbles, where asset prices rise due to speculative buying, creating a self-fulfilling prophecy until the bubble bursts. Kindleberger highlights the role of "swindles and defalcations" – often revealed during periods of market stress – as catalysts for panic, underscoring the moral hazards inherent in speculative booms. The author also explores the concept of money as a public good, susceptible to private exploitation, contributing to the conditions for financial excess. Ultimately, the book argues that understanding the historical patterns of financial mania and subsequent collapse is crucial for comprehending the dynamics of market instability.
4 popular highlights from this book
Key Insights & Memorable Quotes
Below are the most popular and impactful highlights and quotes from Manias, Panics, and Crashes: A History of Financial Crises:
This book is an essay in what is derogatorily called "literary economics," as opposed to mathematical economics, econometrics, or (embracing them both) the "new economic history." A man does what he can, and in the more elegant - one is tempted to say "fancier" - techniques I am, as one who received his formation in the 1930s, untutored. A colleague has offered to provide a mathematical model to decorate the work. It might be useful to some readers, but not to me. Catastrophe mathematics, dealing with such events as falling off a height, is a new branch of the discipline, I am told, which has yet to demonstrate its rigor or usefulness. I had better wait. Econometricians among my friends tell me that rare events such as panics cannot be dealt with by the normal techniques of regression, but have to be introduced exogenously as "dummy variables." The real choice open to me was whether to follow relatively simple statistical procedures, with an abundance of charts and tables, or not. In the event, I decided against it. For those who yearn for numbers, standard series on bank reserves, foreign trade, commodity prices, money supply, security prices, rate of interest, and the like are fairly readily available in the historical statistics.
Money is a public good; as such, it lends itself to private exploitation.
In Chapter 5 we consider swindles and defalcations. It happens that crashes and panics often are precipitated by the revelation of some misfeasance, malfeasance, or malversation (the corruption of officials) engendered during the mania. It seems clear from the historical record that swindles are a response to the greedy appetite for wealth stimulated by the boom. And as the monetary system gets stretched, institutions lose liquidity, and unsuccessful swindles are about to be revealed, the temptation to take the money and run becomes virtually irresistible. It is difficult to write on this subject without permitting the typewriter to drip with irony. An attempt will be made.
investors were buying real estate and stocks because their prices had been increasing, and their prices had been increasing because investors were buying these assets.
