Bubble Laws

03/23/2004

Bubble Laws

In my TCS column Does the SEC Know When Enough Is Enough?, I wrote:

Corporate scandals are always good news for big government types. After every bubble bursts, going all the way back to the South Sea Bubble, a slew of new laws have been enacted. Why? There is nothing a politician or regulator wants more than to persuade angry investors that he or she is "doing something" and being "aggressive" in rooting out corporate fraud. Look, for example, at how vigorously the SEC is trying to keep up with attorney general Spitzer.

Harvard law professor John Coates emails the following correction:

I endorse the thrust of the sentence, and would debate the implication (that the new laws are bad because they're passed when a bubble bursts), but the claim that the South Sea Bubble spawned reactive legislation perpetuates a myth. The so-called "Bubble Act," banning unchartered companies from holding themselves out as incorporated entities, did not follow but preceded (and perhaps helped cause) the bursting of the South Sea Bubble. To my knowledge, no major reactive legislation was passed in response to the bursting of the South Sea Bubble.

Harris's explanation of the way the Bubble Act myth got going is interesting: England switched from the Julian to the Gregorian calendar in 1751; until then, what we would call January 1 was called March 25. Later writers - including Blackstone, Maitland, and Plumb - were misled into believing the Bubble Act was adopted in the year after the end of the Bubble, when in fact it was adopted during the Bubble, before it burst. And in fact, the moniker, "Bubble Act," was only added many decades later to the law known when passed as "an Act for better securing certain Powers and Privileges, intended to be granted by His Majesty by Two Charters, for Assurance of Ships and Merchandise at Sea, and for lending Money upon Bottomry; and for restraining several extravagant and unwarrantable Practices therein mentioned." Ron Harris, Industrializing English Law (2000).

Huh. Well, at least with Blackstone et al. I'm in good company.

Posted at 03:47 PM | Permalink

Comments

In my TCS column Does the SEC Know When Enough Is Enough?, I wrote:

Corporate scandals are always good news for big government types. After every bubble bursts, going all the way back to the South Sea Bubble, a slew of new laws have been enacted. Why? There is nothing a politician or regulator wants more than to persuade angry investors that he or she is "doing something" and being "aggressive" in rooting out corporate fraud. Look, for example, at how vigorously the SEC is trying to keep up with attorney general Spitzer.

Harvard law professor John Coates emails the following correction:

I endorse the thrust of the sentence, and would debate the implication (that the new laws are bad because they're passed when a bubble bursts), but the claim that the South Sea Bubble spawned reactive legislation perpetuates a myth. The so-called "Bubble Act," banning unchartered companies from holding themselves out as incorporated entities, did not follow but preceded (and perhaps helped cause) the bursting of the South Sea Bubble. To my knowledge, no major reactive legislation was passed in response to the bursting of the South Sea Bubble.

Harris's explanation of the way the Bubble Act myth got going is interesting: England switched from the Julian to the Gregorian calendar in 1751; until then, what we would call January 1 was called March 25. Later writers - including Blackstone, Maitland, and Plumb - were misled into believing the Bubble Act was adopted in the year after the end of the Bubble, when in fact it was adopted during the Bubble, before it burst. And in fact, the moniker, "Bubble Act," was only added many decades later to the law known when passed as "an Act for better securing certain Powers and Privileges, intended to be granted by His Majesty by Two Charters, for Assurance of Ships and Merchandise at Sea, and for lending Money upon Bottomry; and for restraining several extravagant and unwarrantable Practices therein mentioned." Ron Harris, Industrializing English Law (2000).

Huh. Well, at least with Blackstone et al. I'm in good company.