A new paper by Luigi Zingales asks whether finance benefits society (hat tip - Ronan Gallagher). In the wake of anti-finance sentiment, Zingales argues that academic financial economists have a duty to promote the right sort of finance. Finance, according to Zingales, can quickly degenerate into rent-seeking activity. Zingales argues that financial economists should use their "research to challenge the existing practices in finance and blow the whistle on what does not work. We should be the watchdogs of the financial industry, nots its lapdogs".
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.