MANIAS, PANICS, AND CRASHES: A History of Financial Crises

In this playful and discursive exercise in ""literary economics,"" MIT professor Charles Kindleberger dissects every major financial crisis from the bursting of the South Sea bubble in 1720 to the Great Depression of the 1930s. In his 1973 work, The Worm in Depression, 1929-1939, Kindleberger argued that the duration and intensity of the Great Depression could have been substantially lessened by judicious use of a lender of last resort. Now, drawing on a wealth of historical illustrations, Kindleberger finds that the most Severe depressions of the last 250 years had in common the absence of such an institution. Recommendation: assign the lender's task to the International Monetary Fund, or a similar international agency, and do it quickly before the imminent debt defaults of Third World countries or OPEC price increases catch us unprepared. Kindleberger favors the same policy on a national level. He cheerfully acknowledges, however, that ""the evidence is not abundant enough to admit of strong conclusions."" But, with a taxonomist's attention to detail, Kindleberger classifies, compares, and contrasts the available facts concerning the major manias, from the initial shock (e.g., the invasion of England by the Young Pretender in 1745) to the bank runs and plummeting prices of the genuine financial ""crash."" Though he elaborates on the more entertaining aspects of financial hysteria (Britain exported shiploads of ice skates to Brazil in 1808; Isaac Newton lost 20,000 pounds in the South Sea Bubble fiasco), Kindleberger makes some serious assertions critical of both Monetarists and Keynesians. With financial crises in evidence from New York to Great Britain to Zaire, Kindleberger's systematic approach is a valuable and timely one. And, since the bulk of the literature focuses on particular incidents, his comparative analysis fills a significant gap.