A Handbook of Alternative Monetary Economics
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A Handbook of Alternative Monetary Economics

Edited by Philip Arestis and Malcolm Sawyer

This major Handbook consists of 29 contributions that explore the full range of exciting and interesting work on money and finance currently taking place within heterodox economics. There are many themes and facets of alternative monetary and financial economics but two major ones can be identified.
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Chapter 25: Financial Bubbles

Mark Hayes


Mark Hayes* The a priori assumptions of rational markets and consequently the impossibility of destabilising speculation are difficult to sustain with any extensive reading of economic history. The pages of history are strewn with language, admittedly imprecise and possibly hyperbolic, that allows no other interpretation than occasional irrational markets and destabilising speculation. Here are some phrases culled from the literature: manias . . . insane land speculation . . . financial orgies . . . frenzies . . . feverish speculation . . . epidemic desire to become rich quick . . . wishful thinking . . . intoxicated investors . . . turning a blind eye . . . people without ears to hear or eyes to see . . . investors living in a fool’s paradise . . . easy credibility . . . overconfidence . . . overspeculation . . . overtrading . . . a raging appetite . . . a craze . . . a mad rush to expand. (Kindleberger, 2000: 24–5, original emphasis) Before economists relegate a speculative event to the inexplicable or bubble category, we must exhaust all reasonable economic explanations . . . the business of economists is to find clever fundamental market explanations for events; and our methodology should always require that we search intensively for market fundamental explanations before clutching the ‘bubble’ last resort . . . from our current perspective, [the] irrational speculation [of 1719–20] probably looked a lot like a normal day in a pit of the Board of Trade. (Garber, 1990: 35) 1. Introduction This chapter advances a post-Keynesian perspective on ‘financial bubbles’, a topic of considerable research interest and policy relevance. This can be seen as supporting Kindleberger against Garber in their contrasting views of the nature and significance of bubbles, set out in the above quotations. The...

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