Bubbles in History

Journal: Business History

Date: 2023

Author: William Quinn, John Turner

Abstract:
Bubbles have become ubiquitous. This ubiquity has stimulated research over the past three decades into bubbles in history. In this article, we provide a systematic overview of research into historical bubbles. Our analysis reveals that there is no coherent approach to the study of bubbles and much of the debate has unhelpfully focussed on the rationality/irrationality dichotomy. We then suggest a new framework for the study of historical bubbles, which helps us understand the causes of bubbles and their economic consequences. We conclude by suggesting ways in which business history can contribute to the study of historical bubbles.

Link: Google Scholar

Background and Context

Research Context

Bubbles appear to be happening more frequently, with recent examples including Bitcoin, Chinese stocks, housing market, and dot-com bubbles driving increased research interest.

Methodology

The authors conducted a systematic literature review of journal articles, working papers, and books examining historical financial bubbles over multiple centuries.

Study Scope

Analysis covered major historical bubbles from 1636 to 2015, examining their causes, characteristics, and economic consequences.

Historical Bubbles Timeline: Increasing Frequency in Recent Decades

Shows dramatic increase in bubble frequency in recent decades
Only one major bubble occurred between 1931-1980
Seven bubbles emerged between 1981-2015

Bubble Triggers: Political vs Technological Sparks

Political sparks included government policy changes and debt reduction schemes
Technological sparks included railways, automobiles, and internet innovations
Nearly even split between political and technological triggers

Banking Crisis Correlation: Post-Bubble Outcomes

Just under half of historical bubbles led to banking crises
Banking crises typically resulted from collapse in collateral values
Bubbles without banking crises had less severe economic impacts

Contribution and Implications

Introduces new "bubble triangle" framework replacing traditional rational/irrational dichotomy
Demonstrates that bubbles with political sparks and bank leverage are most destructive
Shows some bubbles can have positive legacy effects through technological innovation

Data Sources

Timeline Chart: Constructed from Table 1 historical episodes data
Spark Types: Derived from Figure 1 classification scheme
Banking Crisis Chart: Based on "Post-bubble financial crisis" column in Table 1