323. Learning from the South Sea Bubble feat. Thomas Levenson

Aug 25, 2023

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The financial revolution in Europe was an outgrowth of the scientific revolution, and the greatest minds of the time were studying, commenting on, and even participating in the emerging world of finance. Then came the 1720 South Sea Bubble and the financial crisis that followed.

Thomas Levenson is a Professor of Science Writing at the Massachusetts Institute of Technology. He is also an author, and his latest book is titled Money for Nothing: The Scientists, Fraudsters, and Corrupt Politicians Who Reinvented Money, Panicked a Nation, and Made.

Thomas and Greg discuss the circumstances of the South Sea Bubble and how it connected to famous minds like Isaac Newton and Edmond Halley. They relate the financial crisis to other bubbles, like the 2007-2008 financial crisis. Thomas draws out the fascinating parts of what happened with the South Sea Bubble and what lessons can be learned from it and applied to today’s financial markets.

*unSILOed Podcast is produced by University FM.*

Episode Quotes:

Insights on the role of innovation and government purpose in bubbles

33:51: The point of the bubble is that at the core of the bubble was a really good idea that actually served the government's purposes. In fact, served the government's purposes so well that one of the reasons you don't get joint stock companies going forward and in particular, you don't allow private companies to have access to the bond markets, the debt market, in the same way that the government has, is because the government wants to make sure it essentially has a monopoly on that form of finance so that it can continue executing its purposes. And you don't see a private bond market emerging, at least in Britain, until the second quarter of the 19th century.

You can have truth in mathematics

29:02: Mathematics is this sure and certain science. You can have truth in mathematics... The best that physics can be is demonstrated, and there's a difference. And so, if the mathematics work out, then, of course, this is a safe, sound, and perfectly acceptable way to spend your money until it isn't. So there's a rhetoric in the use of mathematical arguments that shouldn't be ignored. It was present in the 1720s bubble and in that era, and it was very much present recently.

Humanities teach you to think about the future in ways that are simply useful

01:01:24: If you try to train for the present, what you're doing is making sure that the future is going to catch you by surprise. And one of the things that the humanities do is teach you to think about the future in ways that are more flexible, more interesting, and, dare I say it, pragmatically, simply useful.

A perspective on continuous evolution and profound shifts

13:29: I see events as a continuous flow rather than as sudden, momentary revolutionary breakthroughs. But if ever there was a profoundly changing, rapidly changing sort of thing, you can experience it in your own lifetime. The late 17th century was remarkable.

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