In the course of writing my book on British banking stability, I've been thinking a lot about financial repression. Financial repression is where governments repress the financial system in order to generate low nominal rates and negative real rates of interest. After World War II, most combatants had really high levels of debt. Consequently, governments used financial repression to reduce their debt servicing costs as well as the real value of their debt. After the 2007-8 financial crisis, many economies have very high levels of government debt. How can they reduce the real value of this debt and keep their debt-servicing costs low? The answer is financial repression - low nominal rates, negative real rates, and a small dose of inflation. You can read more about financial repression here and here.
My colleague and former PhD student Gareth Campbell has created a website about the British Railway Mania - click here . This episode has been described by the Economist as probably the greatest bubble in human history. Gareth's website provides background on the Mania and posits some explanations for the 'bubble'. In his explanation of why the bubble happened, Gareth places a lot of emphasis on investor myopia regarding future dividends and uncalled capital. His study of investors during the episode does not support the view that this episode was fuelled by naive and irrational investors.