Category: Book Quotes of the Day

In November 1840, a fatal accident on the York and North Midland line occurred after Hudson had employed an elderly train driver with defective eyesight in order to save on wages. Similar accidents became frequent on his railways and Hudson’s critics accused him of sacrificing public safety to profitability.

At the same time, an increasing number of frauds are perpetrated on investors, which only come to light after a crisis: “All people are most credulous when they are most happy.”

As the economy became more advanced in the second half of the eighteenth century, the agricultural and fiscal nature of the economic cycle gave way to a new cycle based upon the expansion and contraction of credit.

The lack of knowledge about the mining companies was so general that, it was said, the less known of the place where a mine was to be sunk, the higher the premium its shares reached.

Lord Liverpool, however, remained deaf to these pleas, and reminded Parliament of his earlier warnings to speculators. He invoked the principle of moral hazard which dictates that the rash and foolhardy should suffer, since any relief would only stimulate the revival of speculation and provoke another crisis in the future.

For Neal, it was this conversion process that produced the bubble: “The South Sea Bubble should be viewed not simply as a wild mania or a massive swindle,” he concludes. “These played a role, but the driving force in the bubble was the technical problem of converting government war debts into easy-to-exchange, low-interest, long-term securities.”

In order to monopolise the speculative enthusiasm, Blunt persuaded his friends in the government to pass the “Bubble Act,” which made illegal the establishment of companies without parliamentary permission and prevented existing companies from carrying on activities not specified by their charters.

A recent historian of the South Sea Bubble sympathetically interprets the bubble companies as attempts to realise a vision of material and technological progress ahead of their time.

According to the financial journalist and historian James Grant, “progress is cumulative in science and engineering but cyclical in finance.”

Charles Kindleberger, in his book Manias, Panics and Crashes, suggests that speculative manias typically commence with a displacement which excites speculative interest. The displacement may come either from an entirely new object of investment or from the increased profitability of established investments. It is followed by positive feedback as rising share prices induce inexperienced investors to enter the stock market, and results in euphoria–a sign that investors’ rationality is weakened.