This book provides an analytical treatment of the process of speculation and monetary expansion that has sometimes led to a variety of historical crises. These major crises don't necessarily occur frequently within a human lifespan, so it is important to study these historical episodes in order to gain a better understanding of some of their common characteristics. It was written by "literary economist" Charles Kindleberger through the first four editions in 1978, 1989, 1996 and 2000, and subsequently updated by Robert Aliber in the fifth and (this) sixth edition in 2005 and 2011. Kindleberger passed away in 2003 at age 92. Specifically, Kindleberger and Aliber identify and discuss common attributes of the speculation and crisis cycle using material from lots of historical episodes. This is not a chronological story of crisis after crisis, like Charles MacKay's classic 19th century work, "Memoirs of Extraordinary Delusions and the Madness of Crowds," which I recommend. Rather, it is a highly readable discussion of the processes in play, with observations and analyses developed from a wide variety of historical crises.
My reference to Kindleberger as a "literary economist" means two things: First, Kindleberger has focused on a discussion of key theoretical concepts in a language (clear English) that the intelligent lay reader can understand, not on the more widely used language of mathematical economics and econometrics that is so common in the field today. Second, in addition to writing in English rather than math, Kindleberger writes in a sufficiently engaging and interesting style that it shouldn't put you to sleep. Indeed, this is a very interesting work that addresses some of the most irrational bubbles in history (see below). History doesn't always repeat exactly, but it does rhyme.
My first encounter with this book was back in the early 1990s, when I read the second edition. When I pulled my old copy off the shelf and reviewed it prior to taking up the latest edition, I noticed I had forgotten that Kindleberger devoted several pages to the work of Hyman Minsky, whose work has really come into fashion in the last five years. Basically, the Minsky Instability Hypotheses states that periods of prolonged economic stability lead to a reduced awareness of risk, which then leads to periods of instability when the risk that has been ignored finally presents itself on our doorstep. Put more simply, economic stability leads to economic instability. I mention this because it suggests that as a result of his research into speculation and financial crises, Kindleberger was keenly aware of the kinds of conditions that would ultimately play out in 2007 - 2009 and beyond.
In this sixth edition Aliber covers the new ground of more recent crises, making it a very nice update, and he includes his listing of the top ten financial bubbles:
1. The Dutch Tulip Bubble, 1636.
2. The South Sea Bubble, 1720.
3. The Mississippi Bubble, 1720.
4. The late 1920s stock price bubble, 1927 - 29.
5. The surge in bank loans to Mexico and other developing countries in the 1970s.
6. The bubble in real estate and stocks in Japan, 1985 - 89.
7. The 1985 - 89 bubble in real estate and stocks in Finland, Norway, and Sweden.
8. The bubble in real estate and stocks in Thailand, Malaysia, Indonesia, and several other Asian countries in 1992 - 97 and the surge in foreign investment in Mexico, 1990 - 99.
9. The bubble in over-the-counter stocks in the United States, 1995 - 2000.
10. The bubble in real estate in the U.S., Britain, Spain, Ireland, and Iceland between 2002 and 2007--and the debt of the government of Greece.
Late in this edition, Aliber devotes a chapter to "The Lehman Panic," which he refers to as "an avoidable crash."
Given the events of recent years, the latest edition is well timed to address the growing interest in systemic issues of speculative manias and monetary expansions that contribute to the national and international crises we see in panics and crashes that central banks and other lenders of last resort must struggle with. The authors devote two chapters to national and international lenders of last resort and their difficult decisions. As this book describes financial crises, they are "hardy perennials," so we have a lot to gain from understanding some of the common attributes of historical periods of speculation and crisis. As a clear, well-written and solid study of the whole process, this book deserves your serious consideration.