Posted by: donmihaihai | May 18, 2021

Stupid Money

Walter Bagehot wrote those words in 1856 about an event that happened in 1720 — The South Sea Bubble. He was describing human nature’s role in turning smart money into stupid money during manias and panics:

A great deal has been written and is being written on panics and manias — a great deal more than with the most outstretched intellect we are able to follow or conceive; but one thing seems certain, that at particular times a great many stupid people have a great deal of stupid money. Many saving people have only the faculty of saving; they accumulate ably, and contemplate their accumulations with approbation, but what to do with them they do not know… Several excellent economists have plans for preventing improvident speculation…but the only real way is, not to allow any man to have a hundred pounds who cannot prove to the satisfaction of Lord Chancellor that he knows what to do with a hundred pounds. The only want of this obvious and proper precaution allows the accumulation of wealth in the hands of rectors, sweepers, grandmothers, and other persons who have no knowledge of business, and no idea except that their money now produces nothing, and ought and must be forced immediately to produce something. “I wish,” said one of this class, “for the largest immediate income, and I am therefore naturally disposed to purchase an advowson.” Every now and then, from causes which are not to the present purpose, the money of people of this class — the blind capital…of the country — happen to be particularly large and craving; it seeks for some one to devour it, and there is “plethora” — it finds some one, and there is “speculation” — it is devoured, and there is “panic.”

Stupid Money • Novel Investor

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