Section 1C: Bubbles and Panics
Manias, Panics, Crashes
November 30, 1981
Not that I think we are going to have a panic or a crash again soon, but human nature being what it is, one certitude is that we will have both again in our investment lifetimes. Fortune favors the prepared mind, as they say, so it's worth-while to study the anatomy of financial distress at leisure rather than in the eye of the storm. The definitive work on this subject, Manias, Panics, and Crashes, was published in 1978 by the well-regarded economic historian, Charles P. Kindleberger, and is now available in paperback from Palgrave Macmillan. Another good study of American crashes is Panic on Wall Street by Robert Sobel.
Walter Bagehot, first editor of The Economist, described the explosive combination of people and money as well as anyone in his essay on Edward Gibbon when he said:
Much has been written about panics and manias, much more than with the most outstretched intellect we are able to follow or conceive; but one thing is certain, that at particular times a great deal of stupid people have a great deal of stupid money. ... At intervals, from causes which are not to the present purpose, the money of these people—the blind capital, as we call it, of the country—is particularly large and craving; it seeks for someone to devour it, and there is a “plethora”; it finds someone, and there is “speculation”; ...