1 00:00:15,370 --> 00:00:27,210 Speaker 1: Pushkin. This episode of Cautionary Tales is all about speculation, 2 00:00:27,650 --> 00:00:31,890 Speaker 1: scrambles for shares and spring flowers, and it was recorded 3 00:00:32,010 --> 00:00:35,330 Speaker 1: in front of a live audience at the Bristol Festival 4 00:00:35,490 --> 00:00:39,130 Speaker 1: of Economics. If you'd like to explore these ideas in print, 5 00:00:39,210 --> 00:00:41,210 Speaker 1: I'm writing about them in a cover story for The 6 00:00:41,250 --> 00:00:45,090 Speaker 1: Financial Times magazine that's available in the UK in print 7 00:00:45,130 --> 00:00:47,930 Speaker 1: on the twenty eighth of January or online at FT 8 00:00:48,130 --> 00:00:53,930 Speaker 1: dot com. Now the stage is set, enjoy a special 9 00:00:54,210 --> 00:01:09,290 Speaker 1: live episode of Cautionary Tales. One frosty winter morning at 10 00:01:09,330 --> 00:01:13,490 Speaker 1: the start of sixteen thirty seven, a sailor presented himself 11 00:01:13,530 --> 00:01:16,930 Speaker 1: at the counting house of a wealthy Dutch merchant and 12 00:01:17,090 --> 00:01:21,210 Speaker 1: was offered a hearty breakfast of fine red herring. The 13 00:01:21,330 --> 00:01:24,850 Speaker 1: sailor noticed an onion lying on the counter, at least 14 00:01:24,850 --> 00:01:31,250 Speaker 1: he thought it was an onion. Here's what happened next, 15 00:01:31,610 --> 00:01:36,130 Speaker 1: according to a Scottish writer telling the tale two centuries later, 16 00:01:36,890 --> 00:01:39,330 Speaker 1: Thinking it no doubt very much out of its place 17 00:01:39,370 --> 00:01:43,290 Speaker 1: among silks and velvets, he slyly seized an opportunity and 18 00:01:43,330 --> 00:01:46,330 Speaker 1: slipped it into his pocket as a relish for his herring. 19 00:01:47,090 --> 00:01:49,850 Speaker 1: He got clear off with his price and proceeded to 20 00:01:49,890 --> 00:01:53,530 Speaker 1: the key to eat his breakfast. The Scottish writer was 21 00:01:53,610 --> 00:01:56,970 Speaker 1: named Charles mackay, and the story is in his book 22 00:01:57,250 --> 00:02:01,770 Speaker 1: Extraordinary Popular Delusions and the Madness of Crowds. It's one 23 00:02:01,770 --> 00:02:04,330 Speaker 1: of very few works of economic history to have been 24 00:02:04,450 --> 00:02:08,970 Speaker 1: an enduring best seller. From its first publication in eighteen four, 25 00:02:09,130 --> 00:02:13,330 Speaker 1: he won through to the twenty first century, thanks largely 26 00:02:13,370 --> 00:02:18,130 Speaker 1: to its vivid storytelling. McKay goes on to explain that 27 00:02:18,210 --> 00:02:23,330 Speaker 1: the sailor had made a mistake. Seeking a zesty accompaniment 28 00:02:23,370 --> 00:02:28,210 Speaker 1: to his fish, the sailor had unwittingly pilfered not an 29 00:02:28,250 --> 00:02:33,770 Speaker 1: onion but a rare tulip bulb, which was a problem 30 00:02:34,250 --> 00:02:38,210 Speaker 1: because this was one of the strangest of all financial booms, 31 00:02:38,610 --> 00:02:42,770 Speaker 1: the Tulip Mania, during which the choicest bulbs went for 32 00:02:43,130 --> 00:02:48,090 Speaker 1: astonishing sums, including the one the sailor had just grabbed 33 00:02:48,250 --> 00:02:51,490 Speaker 1: for his breakfast. Hardly was his back turned when the 34 00:02:51,530 --> 00:02:57,410 Speaker 1: merchant missed his valuable simper Augustus, worth three thousand florins 35 00:02:57,890 --> 00:03:01,170 Speaker 1: or about two hundred and eighty pounds sterling. Relative to 36 00:03:01,210 --> 00:03:05,090 Speaker 1: the wages of the time, that's well over a million 37 00:03:05,290 --> 00:03:10,090 Speaker 1: dollars today. For a brief moment of tulip mania, a 38 00:03:10,250 --> 00:03:15,050 Speaker 1: Sempair Augustus tulip bulb was worth far more than its 39 00:03:15,050 --> 00:03:19,130 Speaker 1: weight in gold. I've long been fascinated by the stories 40 00:03:19,170 --> 00:03:23,250 Speaker 1: of Charles McKay, especially today, as we seem surrounded by 41 00:03:23,290 --> 00:03:27,930 Speaker 1: things which might or might not be financial bubbles, cryptocurrency 42 00:03:27,970 --> 00:03:32,250 Speaker 1: as and NFTs, meme stocks, or even just a precarious 43 00:03:32,290 --> 00:03:36,330 Speaker 1: stock market. A lot of it seems to make no sense, 44 00:03:37,170 --> 00:03:40,050 Speaker 1: just as the world Charles McKay described where you might 45 00:03:40,130 --> 00:03:44,450 Speaker 1: accidentally eat a million dollars as a breakfast garnish, seems 46 00:03:44,490 --> 00:03:52,490 Speaker 1: to make no sense either, And I wondered could I 47 00:03:52,610 --> 00:03:57,010 Speaker 1: understand the crazy financial markets of today by following Charles 48 00:03:57,090 --> 00:04:00,570 Speaker 1: McKay as a guide into the past. Maybe I could, 49 00:04:01,650 --> 00:04:03,730 Speaker 1: and I learned much more than I could have hoped. 50 00:04:04,570 --> 00:04:07,650 Speaker 1: But they weren't the lessons that mackay had intended to 51 00:04:07,690 --> 00:04:11,970 Speaker 1: teach me. I'm Tim Harford and you're listening to Cautionary 52 00:04:12,010 --> 00:04:26,650 Speaker 1: Tales recording live at the Bristol Festival of Economics. Let's 53 00:04:26,690 --> 00:04:30,850 Speaker 1: start with the obvious, that delightful story about the hungry 54 00:04:30,890 --> 00:04:34,490 Speaker 1: sailor who accidentally at a million dollars as a side 55 00:04:34,490 --> 00:04:39,210 Speaker 1: dish for his herring. It's not true. It can't be 56 00:04:39,290 --> 00:04:43,410 Speaker 1: true who leaves a million dollar treasure lying around on 57 00:04:43,450 --> 00:04:47,530 Speaker 1: a shop counter or anywhere else. Indeed, the first thing 58 00:04:47,530 --> 00:04:50,290 Speaker 1: I learned as I explored the tulip bubble is that 59 00:04:50,410 --> 00:04:55,010 Speaker 1: mackay was wrong about most of it, and Goldgar, a 60 00:04:55,170 --> 00:04:58,970 Speaker 1: historian of the tulip Mania, explains that McKay's account is 61 00:04:59,090 --> 00:05:03,250 Speaker 1: plagiarized from an earlier source, which in turn relied on 62 00:05:03,370 --> 00:05:10,090 Speaker 1: moralizing pamphlets designed to discredit financial speculators. The pig McKay paints, 63 00:05:10,330 --> 00:05:16,170 Speaker 1: says gold Car is based almost solely on propaganda cited 64 00:05:16,490 --> 00:05:20,570 Speaker 1: as if it were fact. Nobody's denying that the Dutch 65 00:05:20,610 --> 00:05:25,610 Speaker 1: became very excited about tulips in the sixteen thirties. Over 66 00:05:25,650 --> 00:05:29,130 Speaker 1: the preceding decades, a thrilling range of new plants had 67 00:05:29,170 --> 00:05:35,810 Speaker 1: been arriving in Europe, such as potatoes, peppers, tomatoes, Jerusalem artichokes, 68 00:05:36,050 --> 00:05:40,690 Speaker 1: French beans, runner beans, and of course the tulips themselves. 69 00:05:42,050 --> 00:05:46,290 Speaker 1: Tulip bulbs were sufficiently unfamiliar to be mistaken for vegetables. 70 00:05:46,290 --> 00:05:49,530 Speaker 1: On at least one occasion, someone roasted some bulbs with 71 00:05:49,570 --> 00:05:53,610 Speaker 1: oil and vinegar, which is the germ of truth in 72 00:05:53,690 --> 00:05:59,490 Speaker 1: Charles McKay's preposterous tale. But tulips, of course, are much 73 00:05:59,570 --> 00:06:04,290 Speaker 1: nicer to look at than to eat, and some infected 74 00:06:04,290 --> 00:06:08,570 Speaker 1: by a virus changed from simple, bold colored petals to 75 00:06:08,850 --> 00:06:15,770 Speaker 1: exquisitely varied patterns. And what happened. The newly wealthy Dutch 76 00:06:15,810 --> 00:06:19,650 Speaker 1: merchant class began to do what wealthy classes of people 77 00:06:19,890 --> 00:06:22,770 Speaker 1: often do. They paid a lot of money for rare 78 00:06:22,850 --> 00:06:25,970 Speaker 1: and beautiful things that they could show off to their friends. 79 00:06:27,410 --> 00:06:33,970 Speaker 1: Today's influencers Brandish birkin handbags or board ape yacht club NFTs. 80 00:06:34,330 --> 00:06:37,170 Speaker 1: Please don't make me try to explain them. It's a 81 00:06:37,210 --> 00:06:41,770 Speaker 1: crypto thing. It's a digital status symbol. Paris Hilton's involved. 82 00:06:43,010 --> 00:06:46,610 Speaker 1: The Dutch fashionists were no different, except they splashed the 83 00:06:46,650 --> 00:06:50,970 Speaker 1: cash on rare tulips, and the more rich Dutch merchants 84 00:06:51,090 --> 00:06:55,010 Speaker 1: tried to get the rarest blooms, the more expensive they became. 85 00:06:56,090 --> 00:07:00,810 Speaker 1: One fabulously wealthy Dutch politician built a garden filled with 86 00:07:01,090 --> 00:07:07,890 Speaker 1: artfully positioned mirrors surrounding a few rare tulips. Mirror multiplied 87 00:07:08,370 --> 00:07:13,370 Speaker 1: into a multipitude. The choicest blooms were so costly even 88 00:07:13,450 --> 00:07:18,570 Speaker 1: he couldn't afford to fill his garden. The philosopher Eustus 89 00:07:18,690 --> 00:07:23,490 Speaker 1: Lipsius wasn't impressed by the tulip connectors. What should I 90 00:07:23,610 --> 00:07:27,250 Speaker 1: call this but a kind of merry madness. They do 91 00:07:27,450 --> 00:07:32,770 Speaker 1: vaingloriously hunt after strange herbs and flowers, which, having gotten, 92 00:07:33,210 --> 00:07:37,690 Speaker 1: they preserve and cherish more carefully than any mother doth 93 00:07:37,770 --> 00:07:42,770 Speaker 1: her child. But it didn't last, of course it didn't. 94 00:07:43,530 --> 00:07:47,730 Speaker 1: In February, bulb wholesalers gathered in Harlem, a day's walk 95 00:07:47,810 --> 00:07:52,890 Speaker 1: west of Amsterdam, to find that nobody wished to buy. 96 00:07:54,250 --> 00:07:59,010 Speaker 1: Within a few days, Dutch tulip prices had fallen tenfold. 97 00:08:00,810 --> 00:08:05,810 Speaker 1: But what today should we make of it? For Charles mackay, 98 00:08:06,210 --> 00:08:08,770 Speaker 1: the moral of the Tulip Mania and his other tales 99 00:08:09,130 --> 00:08:12,130 Speaker 1: that whether we're talking about a financial bubble or a 100 00:08:12,210 --> 00:08:16,850 Speaker 1: religious cult, people go mad in crowds. One doesn't need 101 00:08:16,970 --> 00:08:21,050 Speaker 1: hindsight to see it. If you can think calmly and independently, 102 00:08:21,930 --> 00:08:28,650 Speaker 1: it's obvious. But McKay was writing with hindsight two hundred 103 00:08:28,730 --> 00:08:32,930 Speaker 1: years after the fact, and he seemed much more interested 104 00:08:32,970 --> 00:08:38,290 Speaker 1: in cartoonish exaggeration than inaccurate history. It's not just the 105 00:08:38,410 --> 00:08:42,890 Speaker 1: fake story about the sailor and his expensive breakfast. It's 106 00:08:42,890 --> 00:08:46,770 Speaker 1: the idea that the tulip Mania was all consuming, the 107 00:08:46,970 --> 00:08:50,970 Speaker 1: Dutch economy destroyed in the flames of the burning desire 108 00:08:51,090 --> 00:08:54,570 Speaker 1: for tulips. The rage among the Dutch to possess them 109 00:08:54,650 --> 00:08:57,850 Speaker 1: was so great that the ordinary industry of the country 110 00:08:57,930 --> 00:09:02,570 Speaker 1: was neglected, and the population even to its lowest dregs 111 00:09:02,610 --> 00:09:07,050 Speaker 1: embarked in the tulip trade. But the Historian and gold 112 00:09:07,170 --> 00:09:11,650 Speaker 1: Guard couldn't find a single kruptcy attributable to the tulip Mania. 113 00:09:12,530 --> 00:09:17,610 Speaker 1: Two economic historians, William Quinn and John Turner agree the 114 00:09:17,690 --> 00:09:21,690 Speaker 1: Tulip Mania isn't even in Boom and Bust their Global 115 00:09:21,770 --> 00:09:27,290 Speaker 1: History of financial Bubbles. It had negligible economic impact, They explain, 116 00:09:27,890 --> 00:09:32,770 Speaker 1: it was too unremarkable to merit inclusion. But on my 117 00:09:32,930 --> 00:09:37,850 Speaker 1: quest to understand how bubbles work, that raises a question. 118 00:09:39,250 --> 00:09:43,770 Speaker 1: If McKay was wrong about the Tulipmania, what else was 119 00:09:43,770 --> 00:09:48,530 Speaker 1: he wrong about. Charles McKay was born in eighteen fourteen 120 00:09:48,810 --> 00:09:53,570 Speaker 1: in Perth, Scotland. Today his fame rests entirely on his 121 00:09:53,650 --> 00:09:57,210 Speaker 1: writing about historical manias such as the Tulip bubble and 122 00:09:57,290 --> 00:10:01,090 Speaker 1: the South Sea Bubble. He was just twenty seven, when 123 00:10:01,090 --> 00:10:05,970 Speaker 1: the first edition of Extraordinary Popular Illusions emerged and promptly 124 00:10:05,970 --> 00:10:10,450 Speaker 1: became a best seller. However, in time he was even 125 00:10:10,490 --> 00:10:14,290 Speaker 1: better known as a poet and a hugely popular lyricist. 126 00:10:14,650 --> 00:10:20,490 Speaker 1: Imagine a cross between Robert Frost and Paul McCartney. McKay 127 00:10:20,730 --> 00:10:24,290 Speaker 1: was also a prominent journalist, and in the mid eighteen 128 00:10:24,330 --> 00:10:28,370 Speaker 1: forties he was editor of a small but influential newspaper, 129 00:10:28,610 --> 00:10:34,330 Speaker 1: The Glasgow Argus. Given McKay's interest in investment bubbles, his 130 00:10:34,410 --> 00:10:38,890 Speaker 1: reputation is perhaps the leading historian of manias and his 131 00:10:39,170 --> 00:10:43,250 Speaker 1: editor's pulpit at the Glasgow Argus, it's fascinating to see 132 00:10:43,290 --> 00:10:46,650 Speaker 1: what he made of the British investment scene in the 133 00:10:46,770 --> 00:10:51,970 Speaker 1: eighteen forties. That investment scene was dominated by a fast 134 00:10:52,090 --> 00:10:58,810 Speaker 1: emerging technology, the railway. Let's try to picture the early 135 00:10:58,890 --> 00:11:01,890 Speaker 1: days of the railway by telling a tale as vivid 136 00:11:01,970 --> 00:11:06,850 Speaker 1: and exciting as anything in Charles McKay's book, and a 137 00:11:06,930 --> 00:11:13,050 Speaker 1: tale which happens to be very fire true. The place Parkside, 138 00:11:13,570 --> 00:11:17,610 Speaker 1: a railway station halfway between Liverpool and Manchester in the 139 00:11:17,650 --> 00:11:24,730 Speaker 1: northwest of England. The year eighteen thirty, the occasion the 140 00:11:24,890 --> 00:11:38,850 Speaker 1: grand opening of the world's first intercity railway. A host 141 00:11:38,890 --> 00:11:44,530 Speaker 1: of dignitaries his in attendance, including the Prime Minister, Napoleon's conqueror, 142 00:11:44,570 --> 00:11:49,050 Speaker 1: the Duke of Wellington himself. The local member of Parliament, 143 00:11:49,290 --> 00:11:53,450 Speaker 1: William Huskison is also there, a little tender as he 144 00:11:53,490 --> 00:11:57,730 Speaker 1: recovers from surgery. Huskison's doctor has told him to stay 145 00:11:57,850 --> 00:12:02,450 Speaker 1: home and rest, but he could hardly miss the big day. 146 00:12:02,650 --> 00:12:05,890 Speaker 1: The great railway engineer George Stephenson is there with his 147 00:12:06,010 --> 00:12:12,410 Speaker 1: famous locomotive Rocket. Seven other locomotives are traveling in a procession, 148 00:12:12,730 --> 00:12:17,450 Speaker 1: each pulling short trains bedecked with diverse flags and carrying 149 00:12:17,610 --> 00:12:23,050 Speaker 1: hundreds of distinguished passengers between them. The locomotive Northumbrian leads 150 00:12:23,050 --> 00:12:27,450 Speaker 1: the procession. Let's let the Manchester Guardian take up the story. 151 00:12:27,970 --> 00:12:31,850 Speaker 1: Nothing could exceed the grandeur of its starting, the brilliancy 152 00:12:31,890 --> 00:12:36,010 Speaker 1: of the Cortege, the novelty of the site, considerations of 153 00:12:36,010 --> 00:12:40,010 Speaker 1: the almost boundless advantages of the stupendous power about to 154 00:12:40,050 --> 00:12:44,530 Speaker 1: be put into operation, gave the spectacle an interest unparalleled, 155 00:12:45,130 --> 00:12:49,730 Speaker 1: called forth sublime conceptions of the mind and energies of man. 156 00:12:50,370 --> 00:12:54,170 Speaker 1: Some of the trains stop at Parkside Station, to refuel. 157 00:12:55,130 --> 00:12:58,410 Speaker 1: William Huskisson is one of several gentlemen who gets out 158 00:12:58,450 --> 00:13:01,490 Speaker 1: for a stroll. When he sees the Duke of Wellington, 159 00:13:02,050 --> 00:13:04,570 Speaker 1: he goes to greet him. While in the act of 160 00:13:04,610 --> 00:13:08,650 Speaker 1: shaking hands, herald sounds announced the approach of the rocket 161 00:13:08,730 --> 00:13:12,890 Speaker 1: engine on the opposite rail. Several voices exclaimed, come in 162 00:13:13,450 --> 00:13:20,690 Speaker 1: take care Miska Huskison, Famously accident prone and walking awkwardly 163 00:13:20,850 --> 00:13:26,810 Speaker 1: after his surgery, Huskison githers, thinking first to get out 164 00:13:26,810 --> 00:13:30,130 Speaker 1: of the way of the approaching locomotive by walking away 165 00:13:30,170 --> 00:13:35,050 Speaker 1: from the Duke of Wellington's stationary train, then turning back 166 00:13:35,210 --> 00:13:38,650 Speaker 1: to stand between the two railway lines, pressing himself close 167 00:13:38,690 --> 00:13:43,250 Speaker 1: to the Duke's train, then fearing that there wasn't enough room, 168 00:13:43,370 --> 00:13:46,730 Speaker 1: and deciding to climb on board the Duke's train. The 169 00:13:46,890 --> 00:13:51,290 Speaker 1: unfortunate gentleman became flurried and rapidly caught hold of the door, 170 00:13:51,890 --> 00:13:55,730 Speaker 1: but unhappily, in endeavoring to ascend, he missed his footing 171 00:13:56,210 --> 00:13:59,210 Speaker 1: and either fell or was thrown down by the door. 172 00:13:59,930 --> 00:14:03,090 Speaker 1: The rocket, coming up at the instant, went over his 173 00:14:03,250 --> 00:14:07,690 Speaker 1: leg and thigh and fractured them in a most dreadful manner. 174 00:14:08,090 --> 00:14:11,730 Speaker 1: The entire was the work of a moment, an instant previous. 175 00:14:11,770 --> 00:14:14,170 Speaker 1: He was in the full possession of health and spirits. 176 00:14:14,650 --> 00:14:19,050 Speaker 1: He now lay bleeding and mangled before his friends. To 177 00:14:19,210 --> 00:14:23,330 Speaker 1: portray the scene that followed would be impossible. Missus Huskisson 178 00:14:23,810 --> 00:14:27,610 Speaker 1: or to the scream of horror and sank apparently under 179 00:14:27,650 --> 00:14:33,610 Speaker 1: a refliction. William Huskison MP is remembered today as the 180 00:14:33,690 --> 00:14:39,850 Speaker 1: first victim of a fatal railway accident. Still for an 181 00:14:39,850 --> 00:14:46,170 Speaker 1: exciting new industry, there is no such thing as bad publicity. 182 00:14:46,490 --> 00:14:49,890 Speaker 1: George Stephenson may have sensed that as he rushed the 183 00:14:50,010 --> 00:14:57,450 Speaker 1: dying Huskis into hospital, how else on a locomotive, cautionary 184 00:14:57,450 --> 00:15:10,210 Speaker 1: tales will return after the break. The newspapers were fascinated. 185 00:15:11,170 --> 00:15:15,650 Speaker 1: The unfortunate death of William Huskison ensured the whole world 186 00:15:15,850 --> 00:15:20,370 Speaker 1: knew about this new technology. The Liverpool to Manchester railway 187 00:15:20,490 --> 00:15:24,410 Speaker 1: was soon being heavily used and the railway shareholders were 188 00:15:24,410 --> 00:15:29,170 Speaker 1: making fat profits. Then the Liverpool and Manchester line was 189 00:15:29,210 --> 00:15:33,810 Speaker 1: surely just the start. The railways promised fast, convenient transport 190 00:15:33,850 --> 00:15:37,370 Speaker 1: of both passengers and cargo across the land. Once a 191 00:15:37,410 --> 00:15:40,730 Speaker 1: few health and safety issues had been resolved. Over the 192 00:15:40,770 --> 00:15:46,090 Speaker 1: next few years, the railway age gathered steam. Small private 193 00:15:46,130 --> 00:15:49,890 Speaker 1: companies popped up to raise finance for various lines connecting 194 00:15:49,930 --> 00:15:54,130 Speaker 1: other cities. They promised rich rewards for investors, and by 195 00:15:54,130 --> 00:15:59,770 Speaker 1: the mid eighteen forties a dramatic expansion seemed inevitable. The 196 00:15:59,890 --> 00:16:03,450 Speaker 1: bullish consensus was that Great Britain would go from two 197 00:16:03,570 --> 00:16:07,930 Speaker 1: thousand miles of track to twenty thousand by the decade's end. 198 00:16:08,570 --> 00:16:13,250 Speaker 1: Promoters scrambled to register their new schemes with authorities, while 199 00:16:13,330 --> 00:16:17,010 Speaker 1: people scrambled to hand over their money to those promoters. 200 00:16:17,690 --> 00:16:20,490 Speaker 1: The boom in railway stocks was beaten only by the 201 00:16:20,530 --> 00:16:26,250 Speaker 1: boom in advertising for new railway schemes. Recently, it seemed 202 00:16:26,290 --> 00:16:30,890 Speaker 1: impossible to read anything without bumping into someone selling crypto something. 203 00:16:31,810 --> 00:16:34,690 Speaker 1: By eighteen forty five, it was impossible to pick up 204 00:16:34,690 --> 00:16:38,690 Speaker 1: a newspaper without seeing a solicitation for investors in a 205 00:16:38,770 --> 00:16:43,770 Speaker 1: brand new railway. The Railway Times had a huge circulation. 206 00:16:44,530 --> 00:16:49,490 Speaker 1: It printed three supplements a week to carry all those advertisements. 207 00:16:50,090 --> 00:16:53,490 Speaker 1: There were more than a dozen weekly journals specializing in 208 00:16:53,490 --> 00:16:57,690 Speaker 1: the railways, most of these titles freshly launched in eighteen 209 00:16:57,770 --> 00:17:02,450 Speaker 1: forty five. There was a daily railway paper, The Iron Times, 210 00:17:03,250 --> 00:17:07,890 Speaker 1: even the Economist introduced a special section covering the railways. 211 00:17:08,610 --> 00:17:11,370 Speaker 1: The ability that he's to draw in advertising money from 212 00:17:11,450 --> 00:17:16,930 Speaker 1: railway promoters was simply irresistible. At least, the Victorians were 213 00:17:16,970 --> 00:17:26,210 Speaker 1: spared Elon Musk boosting dogecoin dogecogin, a cryptocurrency initially created 214 00:17:26,250 --> 00:17:31,050 Speaker 1: as a satire of cryptocurrencies. One dogecoin boomed from a 215 00:17:31,090 --> 00:17:35,170 Speaker 1: tiny fraction of ascent to nearly a dollar, and then 216 00:17:35,530 --> 00:17:41,690 Speaker 1: slumped back to a few cents again. Such tulip very mania. Wow. 217 00:17:43,610 --> 00:17:46,050 Speaker 1: But the great and the good of the Victorian age 218 00:17:46,330 --> 00:17:52,970 Speaker 1: enthusiastically plunged into railway stocks. Charles Babbage, Charles Darwin, John 219 00:17:53,010 --> 00:17:57,650 Speaker 1: Stewart Mill and William Makepeace Thackery all invested in the railways, 220 00:17:57,650 --> 00:18:02,250 Speaker 1: either directly or through their families. So did three future 221 00:18:02,290 --> 00:18:05,890 Speaker 1: Prime ministers, come to think of it, so did the 222 00:18:05,930 --> 00:18:10,810 Speaker 1: actual Prime Minister. Robert Peel. Emily and Anne Bronte were 223 00:18:10,890 --> 00:18:14,730 Speaker 1: big fans of railway shares and hurried to invest in 224 00:18:14,770 --> 00:18:18,930 Speaker 1: the York and North Midland Line. Their sister Charlotte wasn't 225 00:18:18,970 --> 00:18:22,730 Speaker 1: so sure. She explained in a letter to a friend, 226 00:18:23,130 --> 00:18:25,290 Speaker 1: I'm very glad to be able to answer your kind 227 00:18:25,330 --> 00:18:29,090 Speaker 1: inquiries by an assurance that our small capital is as 228 00:18:29,170 --> 00:18:32,890 Speaker 1: yet undiminished. The York and Midland is, as you say, 229 00:18:32,930 --> 00:18:36,130 Speaker 1: a very good line. Yet I have been most anxious 230 00:18:36,170 --> 00:18:38,090 Speaker 1: for us to sell our shares. Ere it will be 231 00:18:38,130 --> 00:18:42,370 Speaker 1: too late. I cannot, however, persuade my sisters to regard 232 00:18:42,370 --> 00:18:47,250 Speaker 1: the affair precisely from my point of view. Indeed, Charlotte 233 00:18:47,290 --> 00:18:51,650 Speaker 1: Bronte was in a minority. The country was going mad 234 00:18:51,690 --> 00:18:55,530 Speaker 1: for the railways. The price of railway stocks doubled in 235 00:18:55,610 --> 00:18:59,290 Speaker 1: two years, but that understates what was really going on. 236 00:18:59,970 --> 00:19:03,930 Speaker 1: Many investors would pay just a five percent down payment 237 00:19:04,210 --> 00:19:08,570 Speaker 1: to obtain a toehold in a share. It was called scrip. 238 00:19:09,410 --> 00:19:12,570 Speaker 1: But if you're paid one pound for scrip in a 239 00:19:12,610 --> 00:19:17,410 Speaker 1: twenty pound share, then the twenty pound share doubled in price, Well, 240 00:19:18,010 --> 00:19:21,050 Speaker 1: then you're just made twenty pounds on an initial payment 241 00:19:21,130 --> 00:19:25,570 Speaker 1: of just one pound. No wonder people got excited. Speculators 242 00:19:25,770 --> 00:19:30,890 Speaker 1: enthusiastically traded the scrip, feeling like financial wizards as prices 243 00:19:31,010 --> 00:19:35,530 Speaker 1: rose and flipping their initial investment for a profit. Not 244 00:19:35,690 --> 00:19:38,090 Speaker 1: too many people seem to have thought about the fact 245 00:19:38,130 --> 00:19:42,730 Speaker 1: that they'd paid one pound a week's wages for a 246 00:19:42,810 --> 00:19:46,250 Speaker 1: twenty pound share, and they were still on the hook 247 00:19:46,730 --> 00:19:50,850 Speaker 1: for the other nineteen pounds, And even fewer thought about 248 00:19:50,850 --> 00:19:54,890 Speaker 1: what would happen if share prices stopped rising and started 249 00:19:54,930 --> 00:20:00,050 Speaker 1: to fall. There were some skeptics, the most prominent was 250 00:20:00,090 --> 00:20:04,930 Speaker 1: The Times newspaper, and the skeptics had some sharp questions. 251 00:20:05,810 --> 00:20:10,530 Speaker 1: Would that dramatic growth in railway mileage really happen. If 252 00:20:10,530 --> 00:20:14,810 Speaker 1: it did, could it ever be profitable? Plenty of people 253 00:20:14,810 --> 00:20:18,410 Speaker 1: were willing to pay to travel between prosperous, bustling Liverpool 254 00:20:18,410 --> 00:20:23,410 Speaker 1: and Manchester, but would rural lines be so lucrative? Were 255 00:20:23,530 --> 00:20:26,490 Speaker 1: railways really as cheap to build and to run as 256 00:20:26,490 --> 00:20:32,050 Speaker 1: their promoters claimed, And when railway companies ran parallel lines 257 00:20:32,130 --> 00:20:35,650 Speaker 1: in competition with each other, what would happen to fairs. 258 00:20:37,050 --> 00:20:43,930 Speaker 1: For insight into the debate, wise heads listened to Charles McKay, 259 00:20:44,090 --> 00:20:49,610 Speaker 1: the nation's foremost scholar of investment bubbles. The historian Andrew 260 00:20:49,610 --> 00:20:54,690 Speaker 1: Odliskoe has carried out an exhaustive study of everything McKay wrote, 261 00:20:54,770 --> 00:20:58,010 Speaker 1: and commissioned others to write in The Glasgow Argus in 262 00:20:58,090 --> 00:21:02,170 Speaker 1: eighteen forty four eighteen forty five. In eighteen forty six, 263 00:21:02,570 --> 00:21:06,730 Speaker 1: the peak years of the railway investment boom. So what 264 00:21:06,850 --> 00:21:10,290 Speaker 1: did the great bubble historian think of the railway boom 265 00:21:10,410 --> 00:21:13,570 Speaker 1: had another mania broken out right in front of his 266 00:21:14,050 --> 00:21:20,410 Speaker 1: perceptive eyes. Absolutely not, said mackay. We think that those 267 00:21:20,450 --> 00:21:23,970 Speaker 1: who sowned the alarm of an approaching railway crisis have 268 00:21:24,210 --> 00:21:29,170 Speaker 1: somewhat exaggerated the danger. That was written late in eighteen 269 00:21:29,290 --> 00:21:33,930 Speaker 1: forty five, McKay explicitly refers to some of the historical 270 00:21:34,010 --> 00:21:39,090 Speaker 1: manias he's so famously described in Extraordinary Popular Delusions and 271 00:21:39,250 --> 00:21:43,090 Speaker 1: slaps down those who drew any parallels. It may appear 272 00:21:43,290 --> 00:21:49,850 Speaker 1: wise to the careless or to the ignorant to trace resemblances. Those, however, 273 00:21:49,890 --> 00:21:54,370 Speaker 1: who look more deeply into the matter and think for themselves, 274 00:21:54,850 --> 00:21:58,850 Speaker 1: cannot discover a sufficient resemblance of cause to anticipate a 275 00:21:58,930 --> 00:22:03,130 Speaker 1: similarity of effect. He has a point. The tulip mania 276 00:22:03,290 --> 00:22:08,290 Speaker 1: was a silly fuss about flowers. The railways are iron 277 00:22:08,330 --> 00:22:13,650 Speaker 1: and flame, speed and progress. They're different, so much different 278 00:22:13,850 --> 00:22:16,850 Speaker 1: as to lead to the very opposite conclusion from that 279 00:22:16,930 --> 00:22:21,610 Speaker 1: reached by the alarmists. Mackay, to his credit, warned his 280 00:22:21,690 --> 00:22:26,410 Speaker 1: readers to watch out for the inevitable fraudsters and opportunists, 281 00:22:26,410 --> 00:22:30,930 Speaker 1: but he insisted that the fundamentals of the railways, both 282 00:22:31,010 --> 00:22:35,810 Speaker 1: as a transformative technology and as a profitable investment, were 283 00:22:35,930 --> 00:22:40,250 Speaker 1: absolutely sound. It wasn't like the tulips and all those 284 00:22:40,250 --> 00:22:44,610 Speaker 1: other silly old delusions of crowds, not at all, And 285 00:22:44,730 --> 00:22:49,530 Speaker 1: an expert like McKay could tell a difference. With railways, 286 00:22:49,690 --> 00:22:54,330 Speaker 1: the foundation is broad and secure. They are a necessity 287 00:22:54,410 --> 00:22:57,730 Speaker 1: of the age. They are a property real and tangible 288 00:22:57,770 --> 00:23:02,330 Speaker 1: in themselves, and they must of necessity increase and lead 289 00:23:02,370 --> 00:23:06,770 Speaker 1: to still further and more beneficial developments. Mackay was aware 290 00:23:06,770 --> 00:23:10,730 Speaker 1: of the skeptics, and he sometimes public skeptical pieces by others, 291 00:23:11,530 --> 00:23:15,170 Speaker 1: but this bullish essay on railways as an investment opportunity 292 00:23:15,330 --> 00:23:18,970 Speaker 1: was no outlier. McKay wrote several times on the topic, 293 00:23:19,250 --> 00:23:23,690 Speaker 1: and says Andrew Odliskoe, he appears never to have wavered 294 00:23:23,690 --> 00:23:27,730 Speaker 1: in his belief that there would be abundant profits. We 295 00:23:27,890 --> 00:23:31,890 Speaker 1: think the alarmists are in error, and that there is 296 00:23:31,930 --> 00:23:36,250 Speaker 1: no reason whatever to fear for any legitimate railway speculation. 297 00:23:36,770 --> 00:23:42,210 Speaker 1: McKay's argument seems plausible enough at first sight. Tulips are silly, 298 00:23:43,010 --> 00:23:47,650 Speaker 1: Railways are important, a necessity of the age, a property 299 00:23:47,850 --> 00:23:51,690 Speaker 1: real and tangible in themselves. If you want to invest 300 00:23:52,050 --> 00:23:54,610 Speaker 1: without being caught up in a bubble, then not just 301 00:23:54,970 --> 00:24:00,610 Speaker 1: follow McKay's maxim Look for a broad, secure foundation based 302 00:24:00,650 --> 00:24:04,730 Speaker 1: on a necessity of the age. Don't be distracted by 303 00:24:04,850 --> 00:24:09,850 Speaker 1: fads and fashions. There's only one problem this estment advice 304 00:24:11,130 --> 00:24:15,690 Speaker 1: doesn't work. The modern equivalent of the railways was the 305 00:24:15,770 --> 00:24:21,290 Speaker 1: Worldwide Web. It was, like the railways, a necessity of 306 00:24:21,370 --> 00:24:26,330 Speaker 1: the age, and would like the railways of necessity increase 307 00:24:26,410 --> 00:24:30,930 Speaker 1: and lead to still further and more beneficial developments. But 308 00:24:31,010 --> 00:24:33,610 Speaker 1: that doesn't change the fact that if you put money 309 00:24:33,690 --> 00:24:37,530 Speaker 1: into almost any dot com company in nineteen ninety nine, 310 00:24:38,330 --> 00:24:40,810 Speaker 1: you'd have lost most of it over the next two years. 311 00:24:42,530 --> 00:24:48,330 Speaker 1: Nor a fripperies such as tulips necessarily bubbles. Compare and 312 00:24:48,370 --> 00:24:53,210 Speaker 1: contrast the difference between the rare chulip bulb and the 313 00:24:53,330 --> 00:25:00,810 Speaker 1: burkin handbag. They're both quintessential examples of conspicuous consumption by 314 00:25:00,850 --> 00:25:06,130 Speaker 1: the wealthiest of collectors. Both the rarest tulip bulbs and 315 00:25:06,330 --> 00:25:09,810 Speaker 1: the rarest Birkin bags cost us much as a house. 316 00:25:10,930 --> 00:25:13,970 Speaker 1: The difference is that the bottom quite quickly fell out 317 00:25:14,010 --> 00:25:18,170 Speaker 1: of the market for rare tulips, and it hasn't for Birkins, 318 00:25:19,090 --> 00:25:23,450 Speaker 1: not yet. Perhaps it will, but as far as I 319 00:25:23,490 --> 00:25:25,730 Speaker 1: can figure out, the price has been rising for long 320 00:25:25,850 --> 00:25:29,130 Speaker 1: enough that it's perfectly possible to have spent most of 321 00:25:29,170 --> 00:25:34,250 Speaker 1: your working life building up a pension entirely based on 322 00:25:34,370 --> 00:25:41,450 Speaker 1: investing in Berkins. Then there are the ambiguous investments. Is 323 00:25:41,690 --> 00:25:46,530 Speaker 1: gold a frivolous investment or a necessity of the age? 324 00:25:47,610 --> 00:25:51,970 Speaker 1: Gold produces no stream of income. It has some industrial 325 00:25:52,050 --> 00:25:56,610 Speaker 1: and ornamental uses, but it's chiefly valued because people expect 326 00:25:56,610 --> 00:25:58,810 Speaker 1: that they'll be able to find someone to take it 327 00:25:58,890 --> 00:26:04,010 Speaker 1: off their hands, quite likely as a profit. That's almost 328 00:26:04,010 --> 00:26:07,490 Speaker 1: a textbook definition of a bubble. But if gold is 329 00:26:07,530 --> 00:26:10,290 Speaker 1: in a bubble, it's been in a bubb for several 330 00:26:10,410 --> 00:26:18,410 Speaker 1: thousand years. As for cryptocurrencies, doge coin is absurd by design, 331 00:26:19,130 --> 00:26:24,250 Speaker 1: but the blockchain that the clever, decentralized spreadsheet that underpins 332 00:26:24,290 --> 00:26:29,930 Speaker 1: cryptocurrencies that may just be revolutionary or not. Are we 333 00:26:30,010 --> 00:26:34,770 Speaker 1: looking at tulips or railways? And if we really knew, 334 00:26:36,090 --> 00:26:41,970 Speaker 1: would that help? With his outrageous stories about chulip madness, 335 00:26:42,370 --> 00:26:45,650 Speaker 1: Charles McKay made it seem easy to spot a financial 336 00:26:45,690 --> 00:26:49,250 Speaker 1: bubble but perhaps it wasn't as easy as he thought, 337 00:26:50,050 --> 00:26:56,610 Speaker 1: because shortly after McKay published his enthusiastic editorial, the railway 338 00:26:56,650 --> 00:27:03,690 Speaker 1: bubble was about to burst in a catastrophic fashion. Cautionary 339 00:27:03,690 --> 00:27:15,770 Speaker 1: tales will return in a moment. Charles McKay was championing 340 00:27:15,810 --> 00:27:18,650 Speaker 1: the railways at the very peak of the railway mania 341 00:27:18,970 --> 00:27:23,010 Speaker 1: late in eighteen forty five. Within a matter of weeks, 342 00:27:23,050 --> 00:27:27,730 Speaker 1: shares in railways fell by a fifth. That's a problem 343 00:27:27,930 --> 00:27:31,690 Speaker 1: if you own a full share, but it's a catastrophe 344 00:27:31,890 --> 00:27:34,530 Speaker 1: if you've just brought some script to flip it for 345 00:27:34,530 --> 00:27:38,610 Speaker 1: a profit. You've spent a pound a week's wages, and 346 00:27:38,730 --> 00:27:42,570 Speaker 1: on paper you've already lost four times that amount. Nobody's 347 00:27:42,570 --> 00:27:45,370 Speaker 1: going to take the script off your hands, and so 348 00:27:45,450 --> 00:27:50,010 Speaker 1: you're legally obliged to pay another nineteen pounds to complete 349 00:27:50,050 --> 00:27:55,010 Speaker 1: the purchase. That's money which you don't have and which 350 00:27:55,050 --> 00:27:58,290 Speaker 1: the share won't be worth when you've paid it. At 351 00:27:58,290 --> 00:28:03,250 Speaker 1: the close of eighteen forty nine, Charlotte Bronte lamented, my 352 00:28:03,370 --> 00:28:06,770 Speaker 1: shares are in the York on North Midland Railway. The 353 00:28:06,810 --> 00:28:09,730 Speaker 1: original price of the shares in this railway was fifty 354 00:28:09,770 --> 00:28:13,410 Speaker 1: pounds At one time. They rose to one hundred and twenty. 355 00:28:14,290 --> 00:28:17,530 Speaker 1: They are now down at twenty and it is doubtful 356 00:28:17,570 --> 00:28:22,330 Speaker 1: whether any dividend will be declared. Ah. Yes, about the 357 00:28:22,490 --> 00:28:27,410 Speaker 1: York and North Midland Railway. Sorry Charlotte, but it was 358 00:28:27,490 --> 00:28:33,530 Speaker 1: run by George Hudson, a flamboyant politician and entrepreneur nicknamed 359 00:28:33,810 --> 00:28:38,210 Speaker 1: the Railway King. It turned out to be the enron 360 00:28:38,370 --> 00:28:42,450 Speaker 1: of the age, a massive accounting scandal and a disaster 361 00:28:42,890 --> 00:28:47,650 Speaker 1: for investors. Surely such a thing could never happen today, 362 00:28:49,650 --> 00:28:53,530 Speaker 1: but even the honestly run railway companies were suffering from 363 00:28:53,570 --> 00:28:58,770 Speaker 1: an economic downturn, rising interest rates, too many duplicate lines, 364 00:28:58,970 --> 00:29:06,450 Speaker 1: and fundamentally impossibly optimistic expectations. Within a few years, railway 365 00:29:06,450 --> 00:29:11,690 Speaker 1: shares had fallen from their peak by two thirds. It 366 00:29:11,810 --> 00:29:15,410 Speaker 1: was the sheer scale of investment in the railways that 367 00:29:15,530 --> 00:29:20,370 Speaker 1: made the slump in prices so catastrophic. In the peak year, 368 00:29:20,610 --> 00:29:24,450 Speaker 1: the amount spent on railways by private investors nearly matched 369 00:29:24,690 --> 00:29:29,330 Speaker 1: the entire budget of the British government, which was at 370 00:29:29,330 --> 00:29:32,490 Speaker 1: the time in the process of maintaining an empire and 371 00:29:32,610 --> 00:29:37,290 Speaker 1: waging a series of expensive wars. The cost of building 372 00:29:37,370 --> 00:29:41,010 Speaker 1: all the approved railways would have been almost twice the 373 00:29:41,050 --> 00:29:47,730 Speaker 1: country's entire annual output. Historians say there's simply no parallel. 374 00:29:48,530 --> 00:29:51,850 Speaker 1: No investment scheme has ever sucked in so much of 375 00:29:51,850 --> 00:29:56,050 Speaker 1: a leading economy's output. It was as though the entire 376 00:29:56,130 --> 00:30:00,530 Speaker 1: industrial and financial base of Britain had shifted to mobilize 377 00:30:00,690 --> 00:30:03,970 Speaker 1: for an all out war, except that the generals were 378 00:30:04,050 --> 00:30:07,810 Speaker 1: railway engineers, and the enemies were the canal boat and 379 00:30:07,890 --> 00:30:12,970 Speaker 1: the horse drawn coach. When so much money was at stake, 380 00:30:13,770 --> 00:30:19,450 Speaker 1: the slump was ruinous. Vast sums had been invested, and 381 00:30:19,690 --> 00:30:25,210 Speaker 1: vast sums had been lost. Charlotte Bronte herself had just 382 00:30:25,450 --> 00:30:30,170 Speaker 1: seen Jane Eyre become a best seller, so was cushioned 383 00:30:30,290 --> 00:30:34,210 Speaker 1: from the disaster. But she was quite aware that others 384 00:30:34,290 --> 00:30:38,250 Speaker 1: were not so lucky. This business is certainly very bad, 385 00:30:38,850 --> 00:30:41,290 Speaker 1: worse than I thought, and much worse than my father 386 00:30:41,370 --> 00:30:44,610 Speaker 1: has any idea of. I ought perhaps to be rather 387 00:30:44,690 --> 00:30:48,050 Speaker 1: thankful than dissatisfied when I look at my own case 388 00:30:48,130 --> 00:30:51,570 Speaker 1: and compare it with that of thousands. Besides, I scarcely 389 00:30:51,570 --> 00:30:55,850 Speaker 1: see room for a murmur. Many, very many are, by 390 00:30:55,890 --> 00:31:00,410 Speaker 1: the late Strange railway system, deprived almost of their daily bread. 391 00:31:01,530 --> 00:31:08,170 Speaker 1: That phrase, the late Strange railway system speaks vividly of 392 00:31:08,210 --> 00:31:12,850 Speaker 1: the bewilderment. Investors felt they could scarcely comprehend what had 393 00:31:12,890 --> 00:31:16,970 Speaker 1: happened to them and to their money. Writing two years later, 394 00:31:17,250 --> 00:31:22,330 Speaker 1: the contemporary chronicler John Francis vividly told the tale. No 395 00:31:22,610 --> 00:31:25,890 Speaker 1: other panic was ever so fatal to the middle class. 396 00:31:26,450 --> 00:31:30,370 Speaker 1: It reached every hearth, saddened every heart, and the metropolis. 397 00:31:31,170 --> 00:31:35,370 Speaker 1: Entire families were ruined. There was scarcely an important town 398 00:31:35,410 --> 00:31:40,090 Speaker 1: in England, but what beheld some wretched suicide. The economic 399 00:31:40,170 --> 00:31:44,490 Speaker 1: historians William Quinn and John Turner argue that a bubble 400 00:31:44,810 --> 00:31:49,370 Speaker 1: needs three elements to inflate, just as a fire needs 401 00:31:49,410 --> 00:31:53,570 Speaker 1: three elements to keep burning. For a fire, those elements 402 00:31:53,610 --> 00:32:00,970 Speaker 1: of fuel, heat, and oxygen. For a financial bubble, its marketability, speculation, 403 00:32:01,450 --> 00:32:04,530 Speaker 1: and cheap money. Yes, I know that's not quite as catchy. 404 00:32:05,450 --> 00:32:09,090 Speaker 1: Marketability means that you can easily buy and sell assets 405 00:32:09,570 --> 00:32:15,250 Speaker 1: such as that cheap scrip. Marketability sets the stage for speculation. 406 00:32:16,250 --> 00:32:20,250 Speaker 1: Speculative investors don't buy with an eye on the fundamentals, 407 00:32:20,290 --> 00:32:23,450 Speaker 1: but in the hope of quickly reselling at a profit. 408 00:32:24,090 --> 00:32:28,370 Speaker 1: Speculation can create a self fulfilling spiral, just as a 409 00:32:28,410 --> 00:32:34,250 Speaker 1: burning fire creates its own heat. Hopeful speculators cause rising prices, 410 00:32:34,290 --> 00:32:39,970 Speaker 1: and rising prices draw in new hopeful speculators, and finally, 411 00:32:40,650 --> 00:32:44,570 Speaker 1: there's cheap money. If people are able to borrow easily 412 00:32:44,690 --> 00:32:48,250 Speaker 1: at low interest rates, they can take bets with borrowed money. 413 00:32:48,650 --> 00:32:53,290 Speaker 1: When prices rise, they feel like geniuses. When prices fall, 414 00:32:54,490 --> 00:33:00,450 Speaker 1: they lose everything. The railway mania had all of those elements, 415 00:33:01,530 --> 00:33:05,570 Speaker 1: but then so with most modern financial markets for the 416 00:33:05,650 --> 00:33:10,330 Speaker 1: last thirty years or more, and they're not all bubbles. 417 00:33:10,370 --> 00:33:13,490 Speaker 1: Just as when you have fuel, heat, and oxygen, you 418 00:33:13,570 --> 00:33:17,610 Speaker 1: still need something else to start a fire, a spark. 419 00:33:19,250 --> 00:33:23,730 Speaker 1: Why does PSALM investments find a spark like board apes 420 00:33:24,450 --> 00:33:30,250 Speaker 1: and dogecoin and birkin bags while others don't. I don't know. 421 00:33:31,290 --> 00:33:34,170 Speaker 1: How do you tell if some new investment craze will 422 00:33:34,210 --> 00:33:37,610 Speaker 1: fizzle out just as quickly as Dutch tulips or keep 423 00:33:37,650 --> 00:33:41,050 Speaker 1: its value for as long as birkin bags or gold. 424 00:33:42,290 --> 00:33:47,210 Speaker 1: I don't know. By following Charles McKay as a guide, 425 00:33:48,090 --> 00:33:50,930 Speaker 1: I haven't learned to make sense of today's financial markets, 426 00:33:51,850 --> 00:33:55,730 Speaker 1: but I have learned one thing. When McKay said, you 427 00:33:55,810 --> 00:33:59,410 Speaker 1: don't need hindsight to see a bubble that it's obvious 428 00:33:59,610 --> 00:34:04,850 Speaker 1: if you think calmly and independently. He was wrong. Charles 429 00:34:04,890 --> 00:34:08,530 Speaker 1: McKay must have been aghast at the collapse of the 430 00:34:08,610 --> 00:34:13,050 Speaker 1: railway boom. He wasn't just bullish about the railways. He 431 00:34:13,170 --> 00:34:17,650 Speaker 1: was right at the extreme of the enthusiasts. Most railway 432 00:34:17,690 --> 00:34:23,730 Speaker 1: bulls anticipated twenty thousand miles of railway by eighteen fifty. 433 00:34:23,850 --> 00:34:27,530 Speaker 1: That figure was eventually reached, but not until the nineteen hundreds. 434 00:34:28,650 --> 00:34:33,490 Speaker 1: McKay predicted that there would eventually be one hundred thousand 435 00:34:33,570 --> 00:34:37,170 Speaker 1: miles of railway line in Britain. We never got close. 436 00:34:39,050 --> 00:34:42,770 Speaker 1: Charles McKay wasn't wrong to argue that people can suffer 437 00:34:42,810 --> 00:34:49,890 Speaker 1: from collective delusions, but his account lacks a crucial element humility. 438 00:34:50,130 --> 00:34:55,250 Speaker 1: McKay's exaggerated caricatures made it seem so easy to spot bubbles, 439 00:34:55,930 --> 00:34:58,450 Speaker 1: but it's not so easy to see a bubble when 440 00:34:58,450 --> 00:35:03,690 Speaker 1: it's all around you. Bubble historian Andrew Odliskoe described the 441 00:35:03,810 --> 00:35:07,890 Speaker 1: railway mania of the eighteen forties as, by many measures, 442 00:35:08,450 --> 00:35:13,410 Speaker 1: the greatest technology mania in history, and its collapse was 443 00:35:13,450 --> 00:35:18,770 Speaker 1: one of the greatest financial crashes. Charles McKay stood right 444 00:35:18,810 --> 00:35:22,530 Speaker 1: in the middle of it, looking around as it, debating it, 445 00:35:23,170 --> 00:35:27,250 Speaker 1: and pondering his own work on financial manias, and he 446 00:35:27,570 --> 00:35:33,290 Speaker 1: utterly misperceived what he was witnessing. Those who forecast great 447 00:35:33,330 --> 00:35:37,370 Speaker 1: things for the railways weren't wrong. The lines built in 448 00:35:37,450 --> 00:35:41,090 Speaker 1: the eighteen forties still form the backbone of the country's 449 00:35:41,170 --> 00:35:44,770 Speaker 1: rail system in the twenty first century. Those who forecast 450 00:35:44,850 --> 00:35:47,850 Speaker 1: great things for the Internet in nineteen ninety nine weren't 451 00:35:47,850 --> 00:35:53,130 Speaker 1: wrong either. But none of this justified investment optimism. The 452 00:35:53,290 --> 00:35:58,010 Speaker 1: railways were a disaster for their investors, and the railway 453 00:35:58,010 --> 00:36:02,850 Speaker 1: bubble caused vastly more hardship than the tulip mania. Ever, 454 00:36:02,930 --> 00:36:08,890 Speaker 1: could don't feel too sorry for McKay himself. His reputation 455 00:36:09,090 --> 00:36:14,450 Speaker 1: appeared untarnished by his spectacular error. In eighteen fifty, when 456 00:36:14,490 --> 00:36:18,330 Speaker 1: the poet laureate William Wordsworth died, mackay was said to 457 00:36:18,330 --> 00:36:21,890 Speaker 1: be in the running to replace him. Instead, he became 458 00:36:21,930 --> 00:36:24,890 Speaker 1: the editor of the most read newspaper in the country, 459 00:36:25,210 --> 00:36:29,970 Speaker 1: the Illustrated London News, and later foreign correspondent for the 460 00:36:30,010 --> 00:36:34,570 Speaker 1: Times of London covering the American Civil War. Of course, 461 00:36:34,810 --> 00:36:39,410 Speaker 1: Charles McKay found time to revise his best selling book 462 00:36:39,930 --> 00:36:45,650 Speaker 1: Extraordinary Popular Delusions. So what did he have to say 463 00:36:46,170 --> 00:36:51,570 Speaker 1: about the railway bubble? Not much. In the eighteen fifty 464 00:36:51,610 --> 00:36:55,770 Speaker 1: two edition there is a footnote which reads, the social 465 00:36:56,010 --> 00:37:00,530 Speaker 1: projects remained until eighteen forty five the greatest example in 466 00:37:00,610 --> 00:37:05,370 Speaker 1: British history of the infatuation of the people for commercial gambling. 467 00:37:05,770 --> 00:37:09,930 Speaker 1: The railway mania was even bigger than the self see bubble, 468 00:37:09,970 --> 00:37:14,730 Speaker 1: and McKay obviously knows that, but he can't quite bring 469 00:37:14,810 --> 00:37:19,850 Speaker 1: himself to say so directly. Instead, he adds, the first 470 00:37:20,010 --> 00:37:23,330 Speaker 1: edition of these volumes was published some time before the 471 00:37:23,370 --> 00:37:27,130 Speaker 1: outbreak of the Great Railwaymania of that and the following year, 472 00:37:28,490 --> 00:37:32,530 Speaker 1: and that footnote is the only acknowledgment that the Railwaymania 473 00:37:32,690 --> 00:37:37,010 Speaker 1: even existed. The most famous historian of bubbles had a 474 00:37:37,090 --> 00:37:41,970 Speaker 1: front row seat for the largest speculative bubble in British history. 475 00:37:42,730 --> 00:37:47,850 Speaker 1: Afterwards he had absolutely nothing to say about it. His 476 00:37:48,010 --> 00:37:55,730 Speaker 1: silence speaks loud and clear. A central source for this 477 00:37:55,810 --> 00:38:00,970 Speaker 1: episode was Handrew Obuscoe's research paper, Charles McCay's own Extraordinary 478 00:38:01,010 --> 00:38:04,890 Speaker 1: Popular Delusions and the Railway Mania. For fullest last sources, 479 00:38:05,010 --> 00:38:08,410 Speaker 1: visit Turning the Paper dot com. This live edition of 480 00:38:08,490 --> 00:38:12,010 Speaker 1: Portraits Tales was written by me Tim Hartperks with Andrew Wright. 481 00:38:12,410 --> 00:38:16,050 Speaker 1: It featured the voice talents of Stella Harford and Stewett 482 00:38:16,090 --> 00:38:19,810 Speaker 1: mclock Len. It was produced by Ryan Dilley. The original 483 00:38:19,890 --> 00:38:22,650 Speaker 1: music is the work of Pascal Wise. Our sound engineer 484 00:38:22,850 --> 00:38:25,890 Speaker 1: was Harvey Dles with Answer Zoe Steppan Milne and the 485 00:38:25,890 --> 00:38:29,450 Speaker 1: team at the Pristal Festival of Economics. Horsh Retales is 486 00:38:29,450 --> 00:38:33,010 Speaker 1: a production of Pushkin Industries. Like the show, please remember 487 00:38:33,090 --> 00:38:35,610 Speaker 1: to rate the share and review you want to hear 488 00:38:35,650 --> 00:38:38,690 Speaker 1: the show ADS three and listen to sponsted corst retale shorts. 489 00:38:39,090 --> 00:38:41,650 Speaker 1: Sign up for Pushkin Plus from the show page of 490 00:38:41,690 --> 00:38:45,730 Speaker 1: an Apple podcast or Pushkin dot ham slash plus