HISTORY BOOK THAT SHOWS WE'VE BEEN THROUGH THIS BEFORE IN 1720

'The Great Mirror of Folly: Finance, Culture and the Crash of 1720' by William N. Goetzmann, Catherine Labio, K. Geert Rouwenhorst and Timothy G. Young, editors, . New Haven: Yale University Press, 2013. xiv + 346 pp. $75 (hardcover), ISBN: 978-0-300-16246-2.

[Reviewed for EH. NET: (Societies for History of Economics) by Antoin E. Murphy, Department of Economics, Trinity College Dublin. (Antoin E. Murphy is the author of numerous books and articles, including John Law: Economic Theorist and Policymaker (Oxford University Press, 1997).

“This is a wonderful book about an extraordinary work, Het Groote Tafereel der Dwaasheid (The Great Mirror of Folly), which though a bibliographic nightmare, provides a fascinating set of engravings and texts about the world’s first stock market booms and collapses in Paris, London and Amsterdam during the frenzied financial year of 1720. Yale University is to be congratulated not only for publishing such a book through Yale University Press, but, also because two of its libraries, the Beinecke Rare Book and Manuscripts Library and the Lewis Walpole Library, have against the current, been presciently building up a financial history collection that provides many of the antiquarian treasures that are presented in this volume.

When the financial crisis broke in 2007 and 2008 many economists who had forgotten about history, naively believing that the Great Moderation had been reached, found themselves on intellectual quicksand. Despite all their apparently sophisticated theorizing they were unable, excepting for a small number of economists including the foreword writer of this book, Nobel laureate Robert J. Schiller, to cast very much light on the unfolding events which destroyed a great part of the financial fabric of the United States and, via contagion effects, nearly brought down the global economy. History had been replaced by mathematical modelling; antiquarian books had been discarded and libraries holding them downgraded; the past was seen as no predictor of the future. But of course history does have a tendency to repeat itself. Remove the wigs from the eighteenth century bankers, financiers and traders and replace them with mobile phones and one finds essentially the same type of agents with all their excessive hype that characterized recent financial markets not just in New York but across the globe. The Great Mirror of Folly of the eighteenth century has most certainly been mirrored in the follies at the start of the twenty-first century. If one accepts this view then there are still important roles for antiquarian books, specialist libraries, economic historians and historians of economic thought to highlight how apparently rational people become irrational, inhabiting asset market bubbles that have huge economic and social costs when they burst. So take a bow Yale along with the editorial team that published this book.”

Comment

I concur with Antoin E. Murphy’s judgement.  I am pleased to see his review as another recent judgement of recent on the dire state of current economics as exposed by the recent shock to policy (fiscal and monetary), with no consensus as to what caused it over 2008-14 or what to do about it: so-called: “austerity” or “borrow” our way out of it.

Antoin Murphy’s is a positive comment on part of a problem that has bothered me for years, since I retired and had time to look around what has happened to all the certainties of economics that once constituted that “glad, confident mornings” (now no more) of my chosen academic discipline of economics in the 1960s.

In retrospect, perhaps I should have spent more critical attention to what I was learning. I should have emphasised more often to my own students that the best candidate for the patron ‘saint’ of students was exemplified by “Doubting” Thomas.