Nicholas Burton - An analysis of Charles P. Kindlebergers Manias, panics, and crashes: a history of financial crises

An Analysis of

Manias, Panics, and Crashes: A History of Financial Crises

Nick Burton

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Perhaps the most peculiar feature of a financial bubble one that Charles Kindlebergers classic work Manias, Panics and Crashes draws particular attention to is the inability of those trapped inside it to grasp the seriousness of their predicament. They know in principle that bubbles exist, and they know that the financial crashes that result from them are capable of destroying individuals wealth and entire economies. Yet whenever and wherever a bubble begins to form, were told that this time things are different, that there are sound reasons to continue to invest and to presume that prices will continue to rise steadily forever.

Kindlebergers achievement is to use the critical thinking skill of evaluation to examine this strange mindset and the arguments advanced in support of it. He harshly judges the acceptability of the reasons used to create such arguments, and highlights the issues of relevance and adequacy that give us every reason to doubt them. Kindleberger also uses his powers of reasoning to effect an unusual achievement writing a work soundly rooted in economics that nonetheless engages and convinces a non-specialist audience of the correctness of his arguments.

Charles P. Kindleberger was born in New York City in 1910. He studied economics during the Great Depression of the 1930s, which followed a dramatic financial crash and was a time of unprecedented hardshipparticularly in America. Kindleberger fought in World War II, and helped draft the Marshall Plan, an economic strategy that saw the US financially support the postwar rebuilding of Europe. These experiences shaped his career and thinking, as he tried to understand the real reasons for financial crises; they also exposed the crucial connections between national economies in a globalized world. When he died in 2003 at the age of 92, Kindleberger was hailed as a major figure in the world of economics.