The First Crash

My list of books I want to read is too long already, but I couldn't resist stopping to browse in Half Price Books today, and once there, buying "The First Crash: Lessons from the South Sea Bubble" by Richard Dale. I'm a sucker for history books that include old poetry and lyrics from the time period, and Dale's first chapter is generously peppered with it. Here's one gem:

So great a Universitie,
I think there ne're was any;
In which you may a Scholar be
For spending of a Penny

The Universities that this anonymous poet was referring to in 1667 were the coffee houses. To begin to explain the crash of the South Sea Bubble in 1720, Dale must begin by describing the coffee houses of late seventeenth and early eighteenth century London, "an amalgam of open-plan office, internet cafe, post office, pub and newspaper library" (13).

The coffee house phenomenon revolutionized social habits and the consumption of both beverages and information. In fact, the coffee houses remind me quite a lot of the Internet. Couldn't the above poem just as easily refer to us bloggers with our reams of armchair commentary?

The coffee houses also changed the business of news and challenged the business model of traditional newspaper proprietors. Newspaper proprietors argued that coffee houses were depriving them of subscription revenue by allowing multiple customers to read an issue without all being subscribers. (Sound familiar?) Information is both valuable and non-rival, so the market for it is contentious. Moreover, the coffee houses' informal private post system was more efficient than the official Post Office, as email and Facebook seem to be today. Coffee houses, like the Internet, also called to question the freedoms of speech and the press, and prompted new laws and regulations.

Most of all, the coffee house revolution and the Internet revolution both changed the was we socially interact with information. In 1674, "The Women's Petition Against Coffee" argued that coffee made men idle and impotent, much as many women today feel about mainly-male online "vices" like online gaming, or the way we all wonder what we're doing spending so much time interacting through a screen. Individual coffee houses came to be associated with particular types of clientele: houses for literary wits, for learned scientists, for lawyers, etc. So people socialized and shared and interacted over the news with other people like themselves-- much like we tend to read the news stories that our own social groups share with us or read blogs by people who think more or less like we think. The fact that we can custom tailor our news exposure to our own interests is a source of both excitement and criticism; it helps us in the necessary task of filtering information, but limits the breadth of our exposure.

The coffee houses, like the Internet, changed the way finance was conducted. Financial markets are markets in information. So it is important to realize that information exists in a social, political, and cultural context. It is how we interact with it; it is inseparable from its transmission. I think this will be essential to understanding financial crises.

I am curious to read on and see what Dale had to say, back in 2004, about lessons from the South Sea bubble, now in light of the most recent financial crash. If it is interesting, which I expect it to be, I will post more.