If you’re convinced that the current cycle of the boom and bust economy is due to the collapse of collateralised debt obligations secured on oversold mortgages that destablised the European market due to its reliance on cheap loans from an artificially inflated US market – think again!
A 1935 Psychological Review article proposed a ‘manic-depressive psychoses’ theory of economic highs and lows based on the idea that the market has a form of monetary bipolar disorder.
Manic-depressive psychoses of business
Psychological Review, Vol 42(1), Jan 1935, 91-107.
Morgan, J. J. B.
An analysis of the various theories offered to explain the business cycle of alternate booms and depressions shows that all these theories are based on a superficial study of symptoms, rather than on an analysis of the real causes, which the author believes are psychological in nature.
Business is compared to a patient suffering from a manic-depressive psychosis, in which the boom period parallels the manic phase and the subsequent slump parallels the depressive phase. It is argued that, in business as in the individual psychosis, the manic period is not a period of real optimism or even over-confidence, but is really a period of fear, for which the excessive speculative activity is a compensatory mechanism.
This fear is induced by a lack of confidence in the credit system and a desire to beat it. Two alternative solutions are offered: one is to strengthen the credit system by building up a group of heroic leaders; but this is utopian at present. The other is to discover a better defense mechanism and adopt it.
I suspect when Dr Morgan thought of a ‘better defense mechanism’ he wasn’t thinking of a bunch of unemployed people and students camping out in the local financial centre.
The article was apparently mentioned by economist Robert Shiller at a talk at the ongoing Society for Neuroscience conference.
Link to article summary (via @carlzimmer)
‘Space madness’ was a serious concern for psychiatrists involved in the early space programme. A new 
A 


The latest edition of The Psychologist has a fantastic
A new
No celebrity disaster is too tragic to remind us of an interesting fact about cognitive science. Some lowlights from the genre.

There’s an excellent interview with Steven Pinker on the BBC Radio 4 
