CHAPTER XXXII

FINANCIAL CRAZES

        IF from the horrors of demonophobia we turn to the market place, to the world of business and finances, we are once more impressed by the extreme suggestibility characteristic of the social spirit. The enthusiasm of speculative mania and the abject fear of financial panics are epidemical. Men think in crowds and go mad in herds. The tulipomania of the Dutch, the Mississippi scheme of the French, the South Sea bubble of the English, the financial epidemics and business panics of our own time, may serve as good illustrations.

        About the year 1631, the Dutch became suddenly possessed with a mania for tulips. The ordinary industry of the country was neglected, and the population, even to its lowest dregs, embarked in the tulip trade. The tulip rapidly rose in value, and when the mania was in full swing some daring speculators invested as much as 100,000 florins in the purchase of forty roots. The bulbs were as precious as diamonds; they were sold by their weight in perits, a weight less than a grain. A tulip of the species called Admiral Liefken weighing 400 perits was worth 4,400 florins; an Admiral Von der Eyck weighing 446 perits was worth 1,260 florins; a Childer of 106 perits was worth 1,615 florins; a Viceroy of 400 perits, 3,000 florins; and a Semper Augustus weighing 200 perits was thought to be very cheap at 5,500 florins.¹

        An insane mania of speculating in tulips seized upon the minds of the Dutch. Regular marts for the sale of roots were established in an the large towns of Holland―in Amsterdam, Rotterdam, Haarlem, Leyden, Alkmaar. The stock jobbers dealt largely in tulips, and their profits were enormous. Many speculators grew suddenly rich. The epidemic of tulipomania raged with intense fury, the enthusiasm of speculation filled every heart, and confidence was at its height. A golden bait hung temptingly out before the people, and one after the other they rushed to the tulip marts, like flies around a honey pot. Everyone imagined that the passion for tulips would last forever, and that the wealthy from every part of the world would send to Holland and pay whatever prices were asked for them.

        The riches of Europe would be concentrated on the shores of the Zuyder Zee. Nobles, citizens, farmers, mechanics, seamen, footmen, maid servants, chimney-sweeps, and old-clothes women dabbled in tulips. Houses and lands were offered for sale at ruinously low prices, or assigned in payment of bargains made at the tulip market. So contagious was the epidemic that foreigners became smitten with the same frenzy and money poured into Holland from all directions.

        This speculative mania did not last long; social suggestion began to work in the opposite direction, and a universal panic suddenly seized on the minds of the Dutch. Instead of buying, everyone was trying to sell. Tulips fell below their normal value. Thousands of merchants were utterly ruined, and a cry of lamentation rose in the land.

        About the year 1717 a maniacal enthusiasm of speculation seized on the French mind. John Law, a sharp Scotchman, was authorized by the Regent of France to establish a company with the exclusive privilege of trading on the western bank of the Mississippi. Expectation rose on all sides, and thousands of people hastened to invest their capital, which was to be raised with unheard-of profits on the water of that great river. With a large fund in hand and with prospects of getting an unlimited supply of money, the Mississippi Company extended the range of its visionary speculation.

        In the year 1719 an edict was published granting to the Mississippi Company the exclusive privilege of trading to the East Indies and the South Seas. The prospects of profit were glorious. John Law, the projector, the ringleader of the epidemic, promised a profit of about one hundred and twenty per cent!

        The enthusiasm of the French nation knew no bounds. Three hundred thousand applications were made for the fifty thousand new shares issued by the company, and Law's house was beset from morning to night by mobs of applicants.

        The eagerness to be on the list of the stockholders rose to a pitch of frenzy. Dukes, marquises, counts, with their duchesses, marchionesses, and countesses, waited in the streets for hours every day to know the result. Every day the value of the shares increased, and fresh applications became so numerous that it was deemed advisable to create no less than three hundred thousand new shares at five thousand livres each, in order that the regent might take advantage of the popular enthusiasm to payoff the national debt. For this purpose the sum of fifteen hundred million livres was necessary. Such was the eagerness of the nation that thrice the sum would have been subscribed if the Government had authorized it.

        The tide of speculative mania rose higher and higher. The French were seized with an insatiable greed for speculation. There was not a person of note among the aristocracy who was not engaged in buying and selling stock. People of every age and sex and condition in life speculated in the rise and fall of Mississippi bonds. The street where the jobbers met was thronged with multitudes of people, and accidents frequently occurred there on account of the great pressure of the crowd. Houses round the resort of speculation―houses worth in ordinary times a thousand livres of yearly rent―yielded as much as twelve or sixteen thousand. A cobbler who had a stall in that street gained about two hundred livres a day by letting it out and furnishing writing materials to brokers and their clients. The story goes that a hunchback who stood in the street gained considerable sums by lending his hump as a writing desk to the eager speculators.²

        A spirit of furious speculation took possession of the French mind to such a degree that thousands abandoned resorts of pleasure to join the orgies of gambling in Mississippi bonds. The whole nation was in a trance; it was intoxicated with the hopes and expectations of enormous gains, nay―with actual realization of great treasures. The French, however, soon woke up from their trance with a cry of distress; the Mississippi bubble burst, and thousands of speculators were ruined and reduced to poverty and misery.

             In the year 1720 a fever of speculation seized on the English mind. The South Sea Company, in order to raise the value of its stock, spread fanciful rumours that all the Spanish colonies would soon be granted free trade, and then the rich product of Potosi would be poured into the lap of the English. Silver and gold would be as plentiful as iron. England would become the wealthiest country in the world, and the richest company in England would be the South Sea Company; every hundred pounds invested ill it would produce hundreds per annum.

        Strange to say, people believed in all those fables, and bought shares and speculated recklessly. Business men were in a high fever of excitement. They abandoned their trades and turned to speculation. For a time it looked as if the whole nation turned stock jobbers. Exchange Alley was blocked up by crowds. Everybody came to purchase stock. "Every fool aspired to be a knave." The epidemic grew in vigour and intensity; the mania for speculation became more acute. New companies with schemes of the most extravagant and fanciful nature sprang up on all sides like mushrooms. The share lists were speedily filled up, and the shares grew on wind and water. Business bubbles were raised on all sides, and people were sure to get rich on them.

        Verily, verily, there are no bounds to human credulity and folly. People invested their fortunes in such absurd schemes that one who has never experienced the fever of modem speculation can hardly realize the state of the public mind. Thus one of the projects that received great encouragement was for the establishment of a company "to make deal boards out of sawdust." One project was more absurd than the other: "For furnishing funerals to any part of Great Britain"; "For a wheel of perpetual motion"; "For extracting silver from lead"; "For the transmutation of quicksilver into a malleable fine metal." Such were the nature of the projects. Some bold speculator started "A company for carrying on an undertaking of great advantage, but nobody to know what it is." In his prospectus the speculator stated that the required capital was half a million, in five thousand shares of one hundred pounds each; deposit, two pounds per share. Each subscriber paying his deposit would be entitled to one hundred pounds per share.³ "Man believes as much as he can," says Prof. James, but as a gregarious animal man believes whatever is suggested to him.

        The waves of business speculation ran higher and higher, and along with it rose tile stock of the South Sea Company. The shares rose three hundred to five hundred, five hundred to five hundred and fifty, and then made a prodigious leap to eight hundred and ninety, and finally the price of the stock rose to one thousand per cent! The bubble was full blown and burst. People began to sell stock to realize profit. The stock fell. The rush for selling increased. The stock began to sink rapidly. The fall produced an alarm, a panic!

        The course of speculation epidemics is to rise to the highest point of heavenly bliss, and then to fall to tile lowest depth of misery; to pass from a state of acute maniacal exaltation to a state of still more acute melancholic depression. The course of the speculation epoch is a kind of social folie à double forme. It is this modern social folie à double forme that clearly discloses the extreme suggestibility of gregarious man.

        A chronological table will show at a glance the uninterrupted chain of European epidemics:

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1. Mackay, Memoirs.
2. Ibid.
3. Ibid.