Why do we like the things we do? René Girard may have the answer.
Everyone knows what an asset-price bubble looks like after it crashes. In fact, everyone looks back and says the crash was inevitable, though no-one thinks to mention that before it happens. But the causes of bubbles are still disputed. How can the perceived value of an asset rise and fall so rapidly — and why does it keep happening?
The value of an asset fluctuates because the desire for the asset fluctuates. René Girard’s mimetic theory gives us an idea about why this happens. Girard said that, beyond the basic needs for survival, there is no such thing as true, authentic desire. No-one wants a new car or a new haircut because they’re just following their heart. Desires are motivated solely by what other people want — we mimic the people we admire and decide we want the same things as them.
This gets us into bubble-like situations because the desires become part of a self-perpetuating cycle. It goes something like this:
I admire some guy getting rich from bitcoin and I want to be like him. He is my model.
- Mimetic desire
To be like him, I desire the same things he desires. If he buys bitcoin, I buy bitcoin as well.
- Mimetic rivalry
He sees other people copying him, proving he was right to buy bitcoin. He desires bitcoin even more, meaning my desire also intensifies. We’re in competition for something in limited supply, so the price goes up and up. Other people see what’s happening and start admiring the model as well.
- Mimetic violence
The rivalry and the emotion become more important than the original desire. The competition becomes so intense that everyone forgets why they wanted bitcoin in the first place. All they know is they have to have it — at any cost.
- Scapegoat mechanism
In Girard’s view, this rivalry stops short of total escalation because of a collectively agreed-upon scapegoat, an other that can be blamed for the chaos and strife. Usually it’s an external actor, like a central bank threatening new regulations or raising interest rates. This scapegoat helps dissipate and direct the anger when the bubble pops and fortunes are lost.
The main lesson? Don’t buy something just because everyone else is buying it. If you didn’t want bitcoin at $5,000, why would you want it at $50,000? Remember, there’s no such thing as ‘just following your heart’.
Watch out for
Mimetic theory has some similarities with Maslow’s hierarchy of needs. Both recognise the differences between basic and higher needs, and both show us how we always desire that which is just out of reach — and that these desires can never be truly satisfied. But while Maslow presented his idea as an individual pathway to achievement, Girard saw cycles of people copying and fighting each other. Maybe it’s time for a new theory of motivation combining the two.
With thanks to Ivan Edwards who wrote most of this post. Thanks Ivan!
Bowyer, Jerry (November 2015), René Girard, ‘The Einstein of the Social Sciences’, Forbes
Girard, René (1972), Violence and the Sacred, 2005 edition translated by Patrick Gregory, Continuum Books
Legler, Janis (August 2020), Bitcoin is a game of musical chairs – and the music is stopping, City A.M.
McDonald, Jamie (February 2021), The Anatomy of Financial Bubbles , Yahoo Finance