instilling moral virtues rather than building consumer confidence. The idea that
the poor should be taught to save grew gradually over the nineteenth century, the
result of propaganda from the savings bank movement. But contemporary
thought was miles away from the idea that a depression might be caused by
ordinary people heeding the propaganda and trying to save too much.
A few years after use of the term financial panic peaked, after the Panic of
1907, the United States passed the Aldrich-Vreeland Act (1908), which created
national currency associations as precursors to a central bank, and a successor
act, the Federal Reserve Act of 1913, which founded the US central bank, whose
purpose was to provide a “cure for business panics.”4
A powerful narrative at that time was the story of a celebrity, J. P. Morgan,
widely considered one of the richest people in America. In the absence of any
US central bank during the Panic of 1907, he used his own money for, and he
prevailed on other bankers to contribute to, a bailout of the banking system. This
saving of the United States from a serious depression was a truly powerful story,
and Morgan’s celebrity only grew. He later built his central office building at 23
Wall Street. Completed in 1913, it is still there today, though he died before he
could occupy it. It was directly opposite the New York Stock Exchange
(completed in 1903 and still functioning today) and across the street from
Federal Hall, which was built in 1842 and replaced the original home of the
Congress of the Confederation. George Washington was sworn in as first
president of the United States on the steps of Federal Hall in 1789. Morgan
chose to make his building strangely small and modest, befitting his public spirit.
Thus Morgan emerged in the narrative as a central and model-worthy hero of
America. The recovery of confidence after the Panic of 1907 was in substantial
measure confidence in one man. The Federal Reserve System was modeled after
his 1907 consortium of bankers. In accordance with the narrative, the new
central bank was technically owned by bankers, though it was created by the
federal government. Every Federal Reserve chair since the founding of the Fed
fits into the narrative as a J. P. Morgan avatar.

FIGURE 10.2. Frequency of Appearance of Financial Panic Narratives within a Constellation of Panic
Narratives through Time, 1800–2000
Each major historical financial panic occurred in a different single year, but the frequency with which each
is mentioned follows a multiyear pattern similar to the more general pattern for the phrase “financial panic”
in Figure 10.1. Source: Google Ngrams (smoothing = 5).
After 1930, the narrative mutated and spread in a different direction.
Deficiencies of business confidence, and later consumer confidence, were
associated more with despair than with sudden fear. By then, the word
depression had also taken on another meaning: a psychological state of
melancholy or dejection. So the increased use of “depression” to describe an
economic contraction reflected a new psychologically based economic narrative
of the time.
During the depression of the 1930s, George Gallup, the originator of the
Gallup polls and a pioneer in public opinion measurement, became the first
social scientist to survey business and consumer confidence using scientific
polling methods.5 Then, in the 1950s, psychologist George Katona at the
University of Michigan began constructing an “Index of Consumer Sentiment.”
The Survey Research Center at the University of Michigan still produces this
index, which Katona created in 1952. Later, in 1966, the Conference Board
created a Consumer Confidence Index. Both of these indexes are based on
questions that consumers answer about their impressions of the strength of the
current and near-future economy. None of the questions used to construct these

indexes asks respondents about the risk of a banking panic or a sudden stampede
of investors, reflecting the changed narrative about business. But the change is
not total, and financial panic narratives still have a chance to be rekindled, as we
saw, for example, in the United Kingdom with the Northern Rock bank in 2007,
the first banking panic there since 1866.

Crowd Psychology Goes Viral
Financial panic narratives have a strong psychological component, and a key
concept here is crowd psychology. By the middle of the nineteenth century,
Charles Mackay’s popular 1841 book Memoirs of Extraordinary Popular
Delusions began to attract public attention to crowd psychology. Gustave Le Bon
popularized the term itself in his best-selling 1895 book, The Crowd. Crowd
psychology began to become influential around that date and grew in an
epidemic-like path, peaking in the early 1930s. The growing number of
references to “crowd psychology” appears to have a parallel in the rising level of
the booming stock market over the 1920s.
Closely related to the idea of crowd psychology is suggestibility, which refers
to the idea that individual human behavior is subconsciously imitative of and
reactive to others. The word, first seen in the late nineteenth century, appears to
be pivotal in narrative constellations and in popular understandings of crowd
psychology. Suggestibility and its relative autosuggestion (which means the
practice of suggesting to oneself) follow a fairly standard epidemic curve,
peaking around 1920 and mostly declining ever since (Figure 10.3). The
concepts likely played a role in the economic exuberance of the 1920s and the
depression of the 1930s.