When Investors Throw Caution to the Winds

From Object Lesson in the Yale Alumni Magazine:

A financial bubble bursts, and stock markets around the world are in free fall. Investor exuberance, greed, and folly are widely blamed. How could we all have been so foolish?

The year is not 2000, but 1720. Soaring prices for newly issued stock shares in France, England, and Holland had made speculators of everyone. The streets in Paris, London, and Amsterdam had buzzed with rumors of the Mississippi Company, the South Sea Company, and other unusual new financial firms set up to issue paper money, fund government debts, and write insurance. Spiraling asset prices made heroes of financial engineers. John Law, a former gambler turned French finance minister, quickly became the world's richest man. But when stock prices plunged Law fled the country, taking with him only what he could carry.

John Law is the culprit in the cartoon shown here, drawn by an anonymous contemporary and printed in an extraordinary volume called Het Groote Tafereel der Dwaasheid (often translated as The Great Mirror of Folly). The crash of 1720 was quickly memorialized by artists and writers. By the end of the year, Het Groote Tafereel appeared in Dutch bookshops -- an anonymous multimedia extravaganza, filled with dozens of allegorical prints, plays, and poems about the crash, as well as financial documents about the Dutch Provinces' own bubble companies.

For more on wild and crazy investors and their bubbles, see this Baker Library presentation.