It drives monetary innovation and the new forms of financing structures that are contrived to allow firms to participate in the boom. The expansion in business activity feeds entrepreneurial and speculative behaviour in the financial sectors.

This pattern underpinned the folly of sub-prime lending. These episodes share a theme: a perceived fundamental change in the economy arouses euphoria and heightened expectations of return, leading to excess, fraud and collapse. Starting with the tulip bulb mania in the 1630s, bubble after speculative bubble has been erased from the popular memory: the South Sea bubble in the early 1700s the Mississippi bubble, which caused a stockmarket crash in 18th-century France the Florida real-estate bubble in the 1920s the stockmarket crash of 1929 the stockmarket crash of 1987 the Nikkei bubble, which began in 1991 and the Nasdaq bubble of 2000. Galbraith argued that an unfettered, competitive capitalist system, operating on pure free-market principles, was inherently cyclical and unstable, requiring robust regulation and active government. As Galbraith remarked, all stockmarket bubbles exhibit 'seemingly imaginative, currently lucrative, and eventually disastrous innovation in financial structures'.

Galbraith, like Keynes before him, identified the instability of modern capitalism in terms of the drive to accumulate excessive wealth and the fragile nature of the financial system.

Galbraith the great crash