“Most bankers dwell in marble halls Which they get to dwell in because they encourage deposits and discourage withdrawals.” Ogden Nash

The big money is chasing a commodity that cannot be bought or sold on the open market; it is a quality that defies precise definition, but which everyone recognises, both inside and outside the financial world; it is both invaluable, and without monetary value; it is, at this moment, the most sought-after stock in the world. It is confidence.

How much does confidence cost? $700 billion? £500 billion? Gordon Brown and Alistair Darling deployed the word like a mantra yesterday. They looked confident enough, but will the public buy it? Confidence is the soul and fuel of finance. Too much results in speculative mania, bubbles, gluttony and swindling, in “prestidigitation, double-shuffling, honey-fuggling, hornswoggling and skulduggery,” as one US economist put it in the 1929 Wall Street Crash. Too little destroys credit, and the gears of finance seize up. None at all leads to panic, then pile-up, a fear as unjustified and uncontrollable as the greed in boom times.

The Germans have an expressive word for what happens when ordinary people lose confidence and rush to sell: Torschlusspanik, literally “door-shut panic”, getting out before the gate slams.

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The present crisis was sparked by toxic debt and a farrago of financial hornswoggling but, at a deeper level, it is about emotions and feelings that have little to do with reason, percentages, profit or loss. A full-scale financial panic, like the irrational exuberance of a wild speculative boom, is a collective, contagious madness.

The financial stampede that Britain has experienced in the past few weeks may be the most profound display of group feeling since the death of Diana, Princess of Wales. Once baseless fear takes hold, of course, it becomes rational to follow suit: even if one knows that there is no need to panic, the mere fact that others are doing so has effects that require the most level-headed to join in.

“I can calculate the movement of heavenly bodies,” Isaac Newton said. “But not the madness of people.” He was not immune to the madness himself, losing a huge £20,000 when the South Sea Bubble burst in 1720.

That speculative orgy showed what happens when there is a confidence glut. Investors poured money into the madness, investing in pure confidence, backing non-existent machines that promised perpetual motion and even, in one celebrated case, “an undertaking which shall in due course be revealed”.

Markets theoretically work on mathematics, solid numbers that may be totted up to produce broadly predictable outcomes, but money itself works on intangible and unquantifiable trust, something close to faith. The monarch “promises to pay the bearer on demand”. We exchange banknotes because we believe in them. A collapse of financial confidence is, in many ways, a crisis of faith.

A run on confidence provokes a sort of monomania. In 1929, Claud Cockburn reported for The Times on the febrile mood on Wall Street: “In New York, you could talk about Prohibition, or Hemingway, or air-conditioning, or music, or horses, but in the end you had to talk about the stock market, and that was when the conversation became serious.”

In New York last week, I found that you could talk about the election, or Hemingway, or the Yankees, but once more the only conversation with real currency was financial, deadly serious and doom-laden, a sort of hysterical self-questioning with no answers.

The economist John Kenneth Galbraith came closest to defining the essence of confidence, and the infectious doubt that destroys and replaces it. “Trust is essential for a boom,” he wrote. “When people are cautious, questioning, misanthropic, suspicious or mean, they are immune to speculative enthusiasms.” Restoring that “pervasive sense of confidence and optimism and conviction that ordinary people were meant to be rich” requires showmanship as well as money. Speed, clarity and boldness are essential.

Early in this mess, the UK Government seemed uncertain and dithering; yesterday's moves were brave but late. Whether the gamble pays off depends on mood as well as money - for this is a psychological drama as much as a financial one.

Charles Kindleberger, in his classic book Manias, Panics and Crashes, defined a panic as “a sudden fright without cause”. Frightened people are not always amenable to rational argument, and the trick to restoring confidence may require something close to a confidence trick.

Kindleberger describes how the Bank of England averted a run in 1720 by placing its allies at the front of the queue to withdraw funds, paying them out very slowly in sixpences; the same people then joined another queue to pay the coins back in. By the time worried account holders reached the head of the queue, the time-consuming public display of a bank functioning normally had restored the magic ingredient of confidence.

No one can yet predict whether the Brown-Darling display of money and assurance will be enough to return the bankers to their marble halls, discourage withdrawals and restore the rule of mathematics over the intemperate rules of emotion.

The economist Bernard Baruch put it best. Writing from the pits of the Great Depression in 1932, he observed: “If, even in the very presence of dizzily rising prices, we had all continuously repeated ‘two and two makes four', much of the evil might have been averted.”

Similarly, even in the general moment of gloom in which this is written, when many may begin to wonder if declines will ever halt, the appropriate abracadabra may be: “They always did.” As governments struggle to concoct the elixir of confidence out of cash and credit, it is worth repeating that two and two still make four, and they always did.

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