Manias, Panics, and Crashes

Kindleberger was an MIT economist who had worked at the New York Fed and the Bank for International Settlements and helped design the Marshall Plan. Manias, Panics, and Crashes, first published in 1978, became the field's standard text, and The Economist called him the master of the genre. After his death in 2003, Robert Z. Aliber took over the revisions, joined for the 2023 eighth edition by Robert N. McCauley, a former central banker.

The book's argument is that crises follow a recognizable pattern across centuries. Kindleberger adapts Hyman Minsky's model: a displacement creates new profit opportunities, credit expands to finance them, speculation turns into euphoria and then mania, insiders begin to sell, and distress gives way to panic.

Reviewers have praised its range and wit. The Boston Globe called it a template against which to measure the latest crisis, and the Financial Times's Richard Lambert described it as a scholarly account of how mismanaged money and credit have produced financial explosions. The eighth edition adds chapters on cryptocurrency and on the United States as the world's lender of last resort.

It is organized by theme rather than as a single narrative, so it reads best as a field guide. Portfolio managers, risk officers and policymakers should keep it close.

1. Crises rhyme. Across four centuries the same sequence recurs: a displacement, easy credit, euphoria, distress and panic. Learning the pattern is the best early-warning system.
2. Credit is the fuel. Manias need financing, and the expansion of bank and market credit is what turns a good story into a bubble.
3. Fraud surfaces at the turn. Swindles flourish in booms and are exposed when credit tightens, so a wave of fraud revelations often signals that a cycle is turning.
4. Crises travel. Capital flows, exchange rates and shared investors carry trouble from one country to another, as in Asia in 1997 and Europe after 2008.
5. The lender of last resort is a judgment call. Rescues can stop a panic but encourage the next mania. Knowing when, and on what terms, to lend is the central policy problem.

The book is organized by theme, moving from how crises develop to how authorities respond. The seventh edition's chapters run as follows, and the eighth edition reworks and adds to them.

1. The anatomy of a crisis. Opening chapters argue that crises are a hardy perennial and set out the Minsky-Kindleberger sequence of displacement, boom, euphoria, distress and panic.
2. Manias and credit. Chapters examine speculative manias, how the expansion of credit fuels them and the critical stage when a bubble is about to pop.
3. Euphoria and fraud. The authors look at paper wealth during booms and at frauds and swindles, using Bernie Madoff to show how the credit cycle exposes them.
4. Contagion. Two chapters trace how crises spread across borders, from 1618 to 1930 and then from Mexico City to Tokyo, Bangkok, New York, London and Reykjavik, followed by the euro crisis.
5. Policy responses. The book weighs benign neglect, exhortation and bank holidays, then the domestic and international lender of last resort, and argues the Lehman panic was avoidable.
6. Lessons and new chapters. The closing chapter draws lessons from history. The eighth edition adds cryptocurrency, the US as global lender of last resort and China's property boom.

Manias, Panics and Crashes was first published in 1978, and dealt with financial crises that were, for the most part, before World War II. Black Monday of October 1987, along with more research especially on the years from 1880 to 1893 indicated a need for a second look. The third edition had its stimulus in the Japanese crash of January 1990, the effects of which carried through to decade. This new fourth edition covers the striking troubles of Mexico in 1994-95 and East Asia in 1997-98.