Paper Conspiracies and the End of All Good Order: Perceptions and Speculation in Early Capital Markets

Abstract

This paper will explore how the rise of businessmen and the creation of early capital markets were viewed by those in the throes of dynamic economic change. It will look at the rise of modern markets in the Netherlands (17th century) and England and France (early 18th century).

During this period of approximately 100 years, the economies of Northwest Europe underwent a fundamental change as domestic and international trade burgeoned. The Commercial and Financial Revolutions were underway. Land, which had been a primary locus of production, wealth and status, suddenly found itself in strenuous competition with banknotes, joint-stock shares, futures, and other newfangled-forms of commercial paper circulating in urban centers. The new paper currency and other forms of intangible property funded new commercial enterprises, created vast amounts of new wealth, and threatened the status quo.

The paper will use Tulip Mania and the South Sea and Mississippi Company Bubbles to illustrate the threats posed by the new forms of property and new economic relationships. It will rely on contemporary accounts, current economic history and research, and works of fiction that capture the mores and psychology of the new markets. And it will show how the perceptions of people four hundred years ago still influence our view of capital markets and businesspeople.

Keywords: South Sea Bubble, Tulip Mania, early capital markets, speculation

JEL Classification: G30, G38, K22, N13, N24, N83