Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist

by Kate Raworth

Less fun but almost as frequent are asset bubbles in which the price of a stock builds higher and higher before it ultimately bursts. The name of that phenomenon originated with the South Sea Bubble of 1720, an event that the great Sir Isaac Newton forbade to be mentioned in his presence ever after. In March of that year, the price of shares in the South Sea Company – which had been granted a British monopoly on trading with South American colonies – began to rise fast as false rumours of its successes abroad started to spread. Newton had already bought a few shares in the company and so in April he cashed them in for a large profit. But the South Sea stock price kept on rising fast and so, swept along by the nation’s enthusiasm, Isaac couldn’t resist the market’s lure. He jumped back in at a much higher price in June – just two months before the bubble finally peaked and burst. Newton lost his life savings as a result. ‘I can calculate the movement of stars, but not the madness of men,’ he famously said in the bubble’s aftermath.24 The master of mechanics had been confounded by complexity.