Дата публикации: 13.10.2026
Kolesnikova Anastasiia
Attendee of language courses at Zhejiang University of Technology
China, Hangzhou
Abstract
The article examines financial crises in world history through the lens of the Kindleberger–Aliber model of financial crisis. Four historical cases are analyzed: Tulip Mania (1637), the South Sea Bubble (1720), the Great Depression (1929–1933), and the global financial crisis of 2008. The author identifies common stages in crisis development and substantiates the necessity of state regulation of financial markets. The conclusion is that all crises reproduce a single stage-based model, confirming the universality of the theory of financial instability.
Keywords: financial crisis, speculative bubble, tulip mania, South Sea Bubble, Great Depression, 2008 crisis, financial instability, market regulation.
Financial crises constitute an integral element of economic history and represent an object of systematic study within the theory of financial instability. The relevance of this research is conditioned by the fact that the mechanisms of speculative bubble formation described on historical material are reproduced in contemporary conditions as well.
The object of the study is financial crises in world history; the subject is their general patterns, typology, and lessons for modern financial architecture. The aim is to identify stable stages in the development of financial crises and to substantiate the necessity of market regulation.
The methodological basis is the model of financial crisis developed by Ch. Kindleberger and R. Aliber [1], according to which a crisis passes through five stages: displacement, boom, euphoria, profit-taking, and panic.
Tulip Mania (1637) demonstrated how speculative expectations can lead to a sharp collapse in the price of an asset that has lost connection with its real value . Tulip mania swept Holland in 1635–1637. The boom began after tulip owners noticed that the petals acquired a variegated pattern; only in the 20th century was it established that the cause was a virus infecting the bulbs. The rarest variety, Semper Augustus, gained the greatest popularity. In 1623, a single bulb cost 1,000 florins, and at the height of the fever prices reached 4,600 florins; for comparison, a pig cost 30 florins, a cow — 100, and the average annual income of a working Dutchman was 150 florins [4].The flower trade moved to the Amsterdam stock exchange, and in 1635 speculators began to conclude contracts for the sale and purchase of bulbs. Contracts took the form of receipts that could be resold repeatedly, marking the beginning of active speculation. By early 1637, tulip fever had turned into a classic speculative bubble. On 3 February 1637, a stock market crash occurred: demand fell sharply, buyers disappeared, and within a short time the value of tulips fell hundreds of times. The market recovered within two years, but prices stabilized at 100–200 florins .
From the standpoint of the Kindleberger–Aliber model, tulip mania passed through all five stages: displacement, boom, euphoria, profit-taking, and panic [1]. This case proves that the absence of regulation and information asymmetry are key conditions for the formation of a bubble.
The South Sea Bubble (1720) became one of the first examples of a financial pyramid. The South Sea Company was founded in 1711 to address the financial problems of the British government. Creditors were offered shares promising regular interest payments; the company also held a monopoly on British trade with South America. In the late 1710s, the company's commercial operations were loss-making, but the trade monopoly stimulated expectations of future wealth [3].
In 1720, the government announced that the company would assume a significant portion of the national debt, provoking a rise in the share price from £128 in January to £550 in May. The collapse of the Mississippi Company in France attracted capital, and the price reached £1,000 in early August. However, directors sold their holdings, provoking a collapse: by late September the price fell to £150, and the company's bank declared bankruptcy; thousands were ruined.
Isaac Newton was one of the first to discern the company's potential. After selling his shares, their price rose several times; on 14 June he invested £26,000 at about £700 per share, buying them at twice the price he had sold them for, after which he remarked that he could “calculate the motion of heavenly bodies, but not the madness of the crowd”. The parliamentary investigation of 1721 revealed fraud among directors and bribery among members of parliament (figure 1) [6].
Figure 1. Dynamics of the South Sea Company stock price (1718-1721).
The South Sea case confirms that insider selling is a typical trigger of collapse [1]. It also shows the role of the state as a market participant, which amplifies systemic risk.
The Great Depression (1929–1933) sharpened issues of financial market regulation and led to the creation of new institutions. A distinctive feature was its synchronism: all spheres of the US economy were affected simultaneously, then those of other countries. The onset is associated with "Black Tuesday" of 29 October 1929, but preconditions had been forming throughout the 1920s [7].
Among the causes was mass immigration from Europe after WWI, overproduction in agriculture, and the active use of machinery, which led to unemployment above 10% [7]. The main cause was the spontaneous development of the market and its oversaturation with goods; the second was financial speculation.
The chronology: on 23 October 1929, more than 6 million securities were sold; on 24 October — nearly 13 million; on 29 October ("Black Tuesday") — more than 16 million shares [7]. Market capitalization fell by $26 billion over two weeks, undermining the US banking system. The Great Depression proved that a policy of state non-interference is not optimal.
The 2008 Crisis is a contemporary example of systemic risk caused by excessive lending and insufficient regulation. The crisis began in the United States and spread globally; in Russia, GDP fell by 7.9% in 2009 [8]. The Great Recession lasted until 2013.
The Fed lowered the rate from 6.5% in 2000 to 1.75% by 2001, providing access to cheap credit [5]. Banks offered money to unreliable borrowers, leading to a housing price rise. Subprime mortgages developed: banks lowered solvency standards and required smaller down payments. Banks pooled mortgage loans into mortgage-backed securities (MBS), and derivatives secured by nothing appeared. From 2004 to 2006, the Fed raised the rate to 5.25%, leading to defaults [5]. On 15 September 2008, Lehman Brothers filed for bankruptcy.
The 2008 crisis confirms the reproducibility of the Kindleberger–Aliber model: displacement (cheap credit), boom (housing prices), euphoria (subprime issuance), profit-taking (selling MBS), and panic (Lehman Brothers) [1].
Main Types of Financial Crises: three main types can be identified. Manias are periods of excessive optimism and speculative bubbles; a classic example is tulip mania. Panics arise when investors lose confidence; a classic example is 1929. Crashes are sharp falls in asset prices.
Each crisis left important lessons : the need for regulation: the absence of adequate regulation can lead to catastrophic consequences; market psychology: investors' emotions play a key role; systemic risk: financial systems are interconnected, and problems in one country can spread rapidly [8].
The analysis of four historical crises allows the following conclusions: first, all crises reproduce a single stage-based model, confirming the universality of the Kindleberger–Aliber model. Second, the key conditions for bubbles are the absence of regulation, information asymmetry, and speculative expectations. Third, the systemic nature of financial markets determines the rapid spread of crises beyond national economies.
References:
1. Aliber, R. Z., & Kindleberger, C. P. (2015). Manias, Panics, and Crashes: A History of Financial Crises (7th ed.). Palgrave Macmillan.
2. Reinhart, C. M., & Rogoff, K. S. (2009). This Time Is Different: Eight Centuries of Financial Folly. Princeton University Press.
3. Banner, S. (1998). The South Sea Bubble and English law, 1720–1722. In Anglo-American Securities Regulation (pp. 41–87). Cambridge University Press. (accessed: 6 October 2026).
4. Mackay, C. (2002). Extraordinary Popular Delusions and the Madness of Crowds. Barnes & Noble Books.
5. Hetzel, R. L. (2012). The Great Contraction, 1929–1933. In The Great Recession: Market Failure or Policy Failure? (pp. 23–45). Cambridge University Press. (accessed: 6 October 2026).
6. Grantham, J. (2011). Pavlov's Bulls (GMO Quarterly Letter, 4Q 2010). Grantham, Mayo, Van Otterloo & Co. LLC. https://www.gmo.com/websitecontent/JGLetterALL_4Q10. pdf
7. Minsky, H. P. (1982). Can "It" Happen Again? Essays on Instability and Finance. M.E. Sharpe.
8. Financial production and the subprime mortgage crisis. (2023). Journal of Evolutionary Economics. Springer.