Published by EH.Net (March 2014)

William N. Goetzmann, Catherine Labio, K. Geert Rouwenhorst and Timothy G. Young, editors, The Great Mirror of Folly: Finance, Culture and the Crash of 1720. New Haven: Yale University Press, 2013. xiv + 346 pp. $75 (hardcover), ISBN: 978-0-300-16246-2.

Reviewed for EH.Net by Antoin E. Murphy, Department of Economics, Trinity College Dublin.

This is a wonderful book about an extraordinary work, Het Groote Tafereel der Dwaasheid (The Great Mirror of Folly), which though a bibliographic nightmare, provides a fascinating set of engravings and texts about the world’s first stock market booms and collapses in Paris, London and Amsterdam during the frenzied financial year of 1720. Yale University is to be congratulated not only for publishing such a book through Yale University Press, but, also because two of its libraries, the Beinecke Rare Book and Manuscripts Library and the Lewis Walpole Library, have against the current, been presciently building up a financial history collection that provides many of the antiquarian treasures that are presented in this volume.

When the financial crisis broke in 2007 and 2008 many economists who had forgotten about history, naively believing that the Great Moderation had been reached, found themselves on intellectual quicksand. Despite all their apparently sophisticated theorizing they were unable, excepting for a small number of economists including the foreword writer of this book, Nobel laureate Robert J. Schiller, to cast very much light on the unfolding events which destroyed a great part of the financial fabric of the United States and, via contagion effects, nearly brought down the global economy. History had been replaced by mathematical modelling; antiquarian books had been discarded and libraries holding them downgraded; the past was seen as no predictor of the future. But of course history does have a tendency to repeat itself. Remove the wigs from the eighteenth century bankers, financiers and traders and replace them with mobile phones and one finds essentially the same type of agents with all their excessive hype that characterized recent financial markets not just in New York but across the globe. The Great Mirror of Folly of the eighteenth century has most certainly been mirrored in the follies at the start of the twenty-first century. If one accepts this view then there are still important roles for antiquarian books, specialist libraries, economic historians and historians of economic thought to highlight how apparently rational people become irrational, inhabiting asset market bubbles that have huge economic and social costs when they burst. So take a bow Yale along with the editorial team that published this book.

The Tafereel, which aimed at providing “a warning for future generations,” was first published in 1720. From a bibliographic perspective it is an enigma because no two copies of it are alike. The printers appear to have had a portfolio of as many as 85 engravings along with attendant plays, poems, proposals for bubble companies, etc., from which to select the composition of each volume. Kuniko Forrer’s remarkably detailed bibliographical interpretation explains that though “we may well compare the Tafereel to a kit that readers were expected to put together by following instructions for use,” in fact “purchasers were free to organize the volume as they chose” (p. 35). Though this volume presents what the editors describe as the “ideal” Tafereel of 74 plates, I feel this decision, perhaps taken on economic grounds, is somewhat disappointing because it necessarily means that not all the plates figuring in some issues of the Tafereel appear. That said, in its very first publication the Tafereel contained only 35 plates

The plates provide its readers with, as Frans de Bruyn, points out a surreal world of “dreamscapes populated with fantastic creatures, mythological characters, hunchback harlequins, devils, dwarves, monkeys, and lizard like reptiles” (p. 21). Hot air, stoked by bellows, and leading to the creation of bubbles abounds in many of the plates. The work is a giant piece of satire aimed at denigrating the greed and hubris of the speculators of 1720. It is easy, of course, ex post to satirize the events of 1719 and 1720 in this way after the bubbles had burst – the first Tafereel was published in late 1720. However, this is to do an injustice to John Law and the Mississippi System. Law was extraordinarily modern and innovative, believing that it was possible to replace specie money with paper money and to create a private sector company capable of managing both the national debt and at the same time developing colonial territories, particularly those in North America.  His vision of a specie-less society would ultimately become the norm in the twentieth century and his attempts at financial innovation served to show how lateral thinking on this front could change society. Rik Frehen, William Goetzmann and Geert Rouwenhorst point out in chapter 4 that though the democratization of capital that suddenly appeared in 1720 was quickly satirized by the literati of the day, “these equity booms were the clear forerunners of future capital markets” and that “ultimately the world’s stock markets re-emerged to provide widespread public access to investment in business enterprise” (p. 84).  Consistent with this line, Eugene White, in a thoughtful re-assessment of Law, asks the question as to whether modern scholars who have re-assessed Law as a great theorist, modernizer and macroeconomist “might be justified in tagging the Dutch volume a scurrilous eighteenth-century blog that defamed John Law and his scheme to liberate France from the shackles of the ancien régime finance” (p. 114).

This is a book of great scholarship and one that should adorn the shelves of all those interested in money, banking, financial innovation, bubbles and the behavior of people during asset market crashes.  At $75 it is a steal and could over the years appreciate at a faster rate than many of today’s banking shares!

Antoin E. Murphy is the author of numerous books and articles, including John Law: Economic Theorist and Policymaker (Oxford University Press, 1997).

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