Early Speculative Bubbles and Increases in the Money Supply
The Housing Bubble was hardly the first in human history. What's eluded historians is the same issue that eludes commentators today: the underlying cause.
This book is the first (and only) book to solve the mystery of the most famous bubble in world history: Tulipmania in 17th century Netherlands. 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.
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 fostering an atmosphere that was ripe for speculation and malinvestment, manifesting itself in the intense trading of tulip bulbs.
The author also examines not only the Mississippi Bubble but the life and monetary theories of its architect, John Law. Professor Joe Salerno calls Law the world's first macroeconomist who implemented a Keynesian monetary system in France nearly two hundred years before Keynes was born.
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 the cause and effect in the history straight. This book is an excellent contribution to that effort.
144 page, paperback, 2009
Douglas E. French