“Tulipmania” has come to be virtually a metaphor in the economics field. When one looks up Tulipmania in The New Palgrave Dictionary of Economics, a discussion of the seventeenth century Dutch speculative mania will not be found.

After the fall of the Roman Empire, many different money systems prevailed throughout Europe. Kings were eager to strike their own gold and silver coins. These coins were typically made full legal tender at a ratio of value fixed by the individual states. This supreme right of coinage was exercised and misused by every sovereign in Europe. After the fall of Byzantium, the sacred images which were struck on most coins disappeared. These sacred images had kept the superstitious masses, not to mention states, from altering the coins.

Perhaps no person in the history of economics has inspired such strong opinions, both for and against, as John Law. Some view Law as a genius. To others he is considered a madman and swindler. In many ways, he was all of these things.

John Law’s Money and Trade Considered With A Proposal For Supplying The Nation With Money was published in 1705, and submitted to the Parliament of Scotland as a solution to lift that country from the depths of a depression. Law’s solution, of course, was to create more money.

John Law began General Bank in May of 1716, a time when France was economically devastated. The late seventeenth century and early eighteenth century had been especially cruel to the French people. Under the reign of Louis XIV, France had fought wars almost continuously from 1689 to 1713, first with the League of Augsburg and then against Great Britain, Austria, Holland, and parts of Spain in the War of the Spanish Succession.

Late seventeenth-century England was a time of increased trade, industrial expansion, and, of course, war. All of these elements created the need, at least in the minds of the British, for a public bank. England’s close relations with Holland during this period gave the British a first-hand view of the vast Dutch economy and the important linchpin for that economy, the Bank of Amsterdam.

As we seek explanations for the causes of speculative bubbles, the forthcoming responses from the different strains of modern mainstream economic thought are far from satisfying. The Rational Expectations School, after much muddling of figures and formulas, comes to the conclusion that bubbles are not possible since all market participants act rationally and can foretell the future.

Andréadès, Andreas M. [1909] 1966. History of the Bank of England 1640–1903. New York: Augustus M. Kelley.

Bank of International Settlements. 1963. Eight European Central Banks. New York: Frederick A. Praeger.

Barbour, Violet. 1963. Capitalism in Amsterdam in the 17th Century. Ann Arbor: University of Michigan Press.

Bisschop, W.R. [1896] 1968. The Rise of the London Money Market 1640–1826. New York: Augustus M. Kelley.

Introduction

Chapter 1—The Greater Fool Theory

Chapter 2—Tulipmania

Chapter 3—Free Coinage, the Bank of Amsterdam, and Tulipmania

Chapter 4—John Law, Genius or Swindler

Chapter 5—John Law’s Monetary Theories

Chapter 6—The Mississippi Bubble

Chapter 7—The South Sea Bubble

Chapter 8—Increases in the Supply of Money, Speculative Bubbles, and the Austr

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