Well, under this context, I’m sure Newton was being sexist and women were equally mad…but that’s not my premise. Today, I simply wanted to point out what happens when people don’t study their history. The result of ignorance might look like madness…
Sir Isaac didn’t have a lot of historical examples to follow when he invested twenty-thousand pounds in what became known as the South Sea Bubble, unless one counts Tulipmania. Many economists consider Tulipmania—when fortunes were lost on the price of a simple tulip bulb—more akin to commodity speculation. That’s what’s happening with oil prices now, and if consumers would simply quit buying oil and gas, those commodity traders would crash like a house of cards, just as the tulip traders did. There’s a historical example I’d like to see us follow—quit paying stupid prices for worthless product. Gold is the same. You can’t eat it, you can’t live in it, and it’s value depends entirely on what you’re willing to pay.
But “bubbles” are something else and what we just recently experienced with the housing market. Anyone with any amount of economics or history background could have predicted that what goes up, must come down. Did everyone truly believe that housing prices would never come down? Why? The South Sea Bubble, and the French version— the Mississippi Bubble, showed us what happens to people who believe what they’re told without proof, and that’s what happened to us. People were almost literally sold hot air.
Of course, the details of any economic disaster are far more complicated than moral lessons about education, but understanding what has happened in the past enables us to turn a more skeptical eye on grandiose promises. In both the English and French bubbles of the early 1700s, wheeler-dealers made grandiose promises of wealth. They rapidly drove up stock prices on excitement and speculation without returning a dime in income. (The ploy didn’t begin or end in the 1700s but those economic bubbles were so huge and devastating that they they’ve become symbols of the public’s gullibility.)
Any good snake oil salesman knows the tactic: Buy shares in our trading company! Buy shares in our bank! You’ll be rich as a lord, we promise. And because the general public believed these important personages, their noble leaders, the general public got ripped off to the tune of millions of pounds/francs, leading to bankruptcies, suicides, and penniless widows and orphaned children. The lessons are numerous but I’d boil them down to, if you’re going to gamble, buy a lottery ticket. It’s cheaper and easier to comprehend. If you want to make an investment, then understand what you’re investing in, what it will cost you, and how you will make a return. Most of the people now caught in foreclosure didn’t even realize that capital investments like houses require more money to maintain them over the long run. Education is required even to buy a home.
Historically, people are always more willing to listen to their leaders, whether they’re polilticians or aristocrats or simply wealthy. Psychologically, I assume that’s because people are too willing to believe that those in a position of power must know more than the average person—until disaster hits, the gap between rich and poor widens, or a whistle-blower reveals all. So the bank says we’re able to pay a $2000 a month mortgage—they must know what they’re talking about, let’s buy it! And practically speaking (if I must), people just don’t have time to educate themselves on every single subject. They have to rely on those they believe know better.
I guess when I was young, I read way too much history to believe everything I’m told. I cut my baby teeth on the likes of Theodore Dreiser and Ayn Rand. I was poor and I armed myself with knowledge (and laughed myself silly over Rand’s grandiose posturing—did she really believe that poor people had the money to buy quality instead of cheap? Common sense required!).
What books did you read in your youth that armed you for today’s world? What ones would you recommend to the generation growing up now? Is there an easier way to teach our children how to think for themselves?
(and I apologize for the lack of images–I've been visiting with the grandkid and buying a house and my world is just a little crazed at the moment!)