Book Review: Manias, Panics, and Crashes

A Birds Eye View of Economic Crises

The foreword by Robert Solow warns you:

It was CPK's style as an economic historian to hunt for interesting things to learn, not to pursue a systematic agenda.

From this you expect a bird's eye view but the bird turns out to be a hummingbird flitting from flower to flower in a seemingly random fashion. Also, as Amazon reviewer Evelyn Uyemura notes, if you are not an economist, many of the older references draw a blank. This is a book written for economists, not for the general public.

The new chapter 13 by Robert Aliber was especially hard for me to read, the sentence structure used being quite complex.

Still, the general message comes across clearly enough, when problems arise it is usually a lack of liquidity (which can have a variety of causes). The solution is a lender of last resort, a solution that creates its own problems, moral hazard.

Kindleberger approaches the analysis as a classical economist, as if economics were a hard science like Newtonian physics. Imagine for a moment if Newton and the other astrophysicists had to analyze a universe where distance, time and the strength of the various forces changed from instant to instant like prices do. I believe it would be mission impossible. Over the past few decades a new way of looking at economics has been tried, as a Complex Science, not as a physical science. The economy is created by the interaction of agents: buyers, sellers, producers and consumers. Being the creation of biological entities, it seems to make sense to look at it from a biologist's point of view. Stuart Kauffman has done some work in that direction. I think it is the more fruitful route to understanding economics.

Denny Schlesinger

Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger and Robert Aliber, Foreword by Robert Solow