Abstract

Charles Kindleberger argues that most, if not all, financial manias, panics, and crashes were market failures deriving from the irrational behavior of human actors. Both his notion of rationality and his interpretation of the sources of financial crises are open to question. A broader notion of rationality enables us to distinguish actual crises from cases of fraud or entrepreneurial error, and a closer look at financial history illustrates the ways in which government regulation, not human irrationality, has been the source of financial disorder.