Journalists, Economists, and Historians

   Guess who has the last word?

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DURHAM, N.C. – Economic Principals is traveling, participating in a conference on one of its favorite topics – the relationship between professional economics and the news business.  A few durable themes stand out. One is the susceptibility of market systems to manias, panics, and crashes.

The most interesting draft paper presented here goes back to the beginnings of modern times to ask, what did London newspapers know, and when did they know it, about the disaster we know today as the South Sea Bubble.

In “British Lions Crouched to a Nest of Owls,” Carl Wennerlind, of Barnard College, describes the episode as “one of the most iconic economic events in history.” In the summer of 1720, shares in the South Seas Company were offered to the public at £170. The stock’s price rose to £1000, before falling to £200 by September, with ruinous effects on the hopes and dreams of families of London emerging upper middle class. A hundred other lesser public offerings had amplified the boom and turned it into a high fever.

What we remember is the outpouring of scorn and blame dished out after the fever broke – in printed ballads, poems, satirical plays, novels, and pamphlets, including works by Jonathan Swift and Daniel Dafoe.

Usually overlooked is the expectation that puffed up the mania – Britain’s entry into new markets for slaves. Realistically speaking, the formation of the South Sea Company was motivated out of practical concerns with the expensive financing. But what remains is the memory of the Crash.

In 2001, historian Julian Hoppit published “The Myths of the South Sea Bubble.” He argued that the effects of the incident had been overblown in those famous accounts in its aftermath. Hoppit identified three commonplace views that showed types of misunderstandings to which the Bubble had been prey.

[F]irst, that investors came from far and wide, but blindly left behind all reason and prudence, skepticism and caution; second, that it produced considerable social mobility by enriching  any and impoverishing more still; and, third, that its collapse led to widespread and profound economic dislocation.

Wennerlind himself is author of a well-received book in which the Bubble plays a part: Casualties of Credit: The English Financial Revolution 1620-1720  (Harvard, 2011). His curiosity reawakened, Wennerlind did something no one had done before.  He read everything written in London newspapers about financial markets during that fateful year.

His conclusion: newspapers had been slow to share the growing exuberance, but quick to assign blame when it went awry, “Courageous and noble English people   had fallen victim to the dark and sinister forces of stock-jobbers,” is how he rephrased the headline that gave him his title. The leadup to the Bubble he found reported in January-April 1720; the Bubble itself began to inflate in May as the public learned there would be more shares to be had, and reached its highest level by the end of June. It burst in August and continued to deflate throughout September. In October, the aftermath began.

The day-to-day newspaper time-line that Wennerlind produced seemed valuable to me, given the significance that has been assigned to the Bubble for four centuries. But a second dividend came clear when I read over Hoppit’s account. The narrative timeline of inside information he assembled from archival sources, seemed top recede information available to newspaper readers by a month or two.

This Robert Harley, the Earl of Oxford, heard from his daughter by letter in March, “The town is write mad about the South Sea, some losers, many great gainers, one can hear nothing else talked of.” A month later, his son reported, “The madness of stock-jobbing is inconceivable. The wildness is beyond my thought”  And a month later,” as newspapers began to recognize the Bubble’s beginning, .“The demon of stock-jobbing is the genius of this place. This fills all hearts, tongues, and thoughts. , and nothing is so like Bedlam as the present humour which has seized all parties: Whigs, Tories, Jacobites, Papists, and all sects.”

Evidence, of more were needed, that newspapers often lag well behind the insiders in whatever story they are seeking to cover, but well ahead of those who lack newspapers to read.  The, as now, journalists wrote the first draft of history.   Economists then interpret the available data and fit their findings into pre-existing analytic frameworks

But it is historians, in this case economic historians as well as historians of economics,  who have the last word in assessing significance. The conference was a promising beginning to a long-range reconnaissance patrol,