Princeton University Press, a favorite university press, has just published a book called The First Crash: Lessons from the South Sea Bubble by Richard Dale.
The South Sea Bubble saw the spectacular rise in the value of the shares of the South Sea Company, and an equally spectacular descent in 1720 when the bubble “burst. Dales book is a chance to understand other moments of market enthusiasm: the run up to the global crash of 1987, the Japanese stock market bubble of the 1980s/90s, the international dot.com boom of the 1990s, and of course the present real estate market.
There is an anthropological way of thinking about economic bubbles. They are after all collective acts of confidence. They are, in fact, self constructing acts of confidence.
They are, to this extent, a little like collecting. The weird thing about collecting, and I know this because I worked in a museum and watched curators build their collections, is how utterly arbitrary they often are. Collectors persuade themselves and their institutions that they “simply must purchase this painting or that artifact because, well, they have constructed a collection into which it fits. The purchase is, in other words, only compelling and “necessary because of the previous decisions made by the curator and his/her institution.
They are, to this extent, a little like a Fibonacci spiral. As an innumerate anthropologist, I am the last person to attempt comment on this dazzling little logic, but heres what strikes me. The Fibonacci scales up by making successively larger versions of itself. Each part reproduces the logic of the last part. In this sense, the system makes itself from itself. Magically, the whole becomes a part of a larger whole which then becomes Like bubble constructions, we cant skip forward. We can only move onwards though the mediating step wise process that makes each new moment utterly presupposing of the last moment.
Bubbles, museum collections, and Fibonacci spirals build themselves. They are self constructing and self legitimating. They build the stair case they then ascend. What is proposed in one moment is assumed in the next. “Ok, says the investor, “if this valuation makes sense then an additional increase is indicated (as the medics and the semioticians say). Only the spoilsport observes that valuation2 makes sense only because valuation1 is now installed as unexceptional and that valuation1 was, in fact, decidedly exceptional, say, 3 months before and unthinkable 6 months before that.
Most of all, bubbles are self dramatizing. They create a sense of urgency. They draw us in. Before they happen, it feels like they will never happen. I remember asking my father in 1960s Vancouver, why he never invested in property. He looked at me indulgently and said, “nobody makes money in property. And, after bubbles burst, they are just gone, as we all recall from those months following April 2000. By July 2000, it was almost impossible to construct what we had been thinking 4 months before. We sometimes come across a copy of Fast Company or Wired Magazine, and we go, “wow, this is really worlds away. Actually, it was just a few years ago.
The spirals and, in some circumstances, the museum collections, go on forever. But bubbles burst. Real bubbles burst because, I am guessing here, scale exceeds surface tension (or something). But economic bubbles begin to come undone for other reasons. And for every empirical case, there must be lots and lots of these interacting with such intensity and dynamism that you would have to be Weber to follow it all. But there is a larger, simpler, puzzle. Something, some process, makes us release ourselves and the collectivity from believing in the bewitching logic of the spiral. One moment, the bubble makes perfect sense. The next moment, “no, we dont believe in this at all.
Anthropology is about the mechanics of belief. It has to be because all culture is constructed, consensual, and yet open even to cataclysmic change. In sum, bubbles are a very nice opportunity for anthropology to make itself useful to the field of economics. And if anthropologists such clueless, world renouncing, nitwits, we would have a vast body of scholarship on this very question. But of course they are, so we dont.
For more on the South Sea Company, see the treatment from the Erasmus School of Economics page here
For an elegant demonstration of the Fibonacci spiral, go here.
With thanks to Sam Chun, Annie Lewison, and J.S. McCracken.