The word "mania" implies losing touch with reality or rationality. It is used all the time in economic history, yet economic theory assumes man is rational.
Charles Kindleberger does battle with those such as Milton Friedman whose attachment to the notion of rational behaviour is so strong they cannot recognise irrationality or destabilising speculation - the market, by definition, can never do wrong. He believes that being doctrinaire is downright dangerous.
However, he does hold that there is a structure to what Adam Smith called "folly, negligence . . . knavery and extravagance".
The first edition of this book appeared in 1978; the October 19th events of 1987 prompted the second, while the Japanese crash of January 1990 led to the third. The fourth edition updates to the east Asian traumas of 1997-1998.
Kindleberger emphasises that a lender of last resort such as the IMF must have the will and resources to step into the breach during a crisis.
He says a world central bank would be a better lender of last resort than the IMF but points out that outside EMU the issue and control of money is a mark of national sovereignty. It is enshrined in the US constitution.
Spare a thought for the very rational scientist Isaac Newton, who lost his shirt in 1720 in the South Sea Bubble: "I can calculate the motions of the heavenly bodies, but not the madness of people."
Manias, Panics, And Crashes is seen as the last word by a distinguished scholar on the history of financial crises and should be on the desks of bankers everywhere. It is a bit heavy for the general reader, but if you have the chutzpah . . .
jmulqueen@irish-times.ie
