Market Bubbles can Pop – Is anything different Today?

The crisis dejour – historically, financial markets have experienced a crowd mentality. The more heated a market gets, the more people want to invest, and the higher the prices are driven.

This bubble has occured throughout history and the cycles can be studied consistently. Professor G. Watson teaches entrepreneurs and the role in the market economy. Regardless of whether we want to think about recent real estate markets which have Broke, these fluctuations are not original. They have routinely occurred throughout history.

One of the most well known historical markets that burst was Amsterdam’s Tuplip market. We can consider the Tulipmania of the tulip market that burst in 1637 as a popularly documented historical account of a economy that overheated.

Tulips were originally brought from Turkey in the early 16th century. As new “varieties” of tulip bulbs were discovered, competition intensified and their value soared. One honestly rare variety was the Semper Augustus which reached prices in excess of 1,000 florins per single bulb in 1623. This price was more than six times the average annual wage.

This market mania continued – and ten years later the price had increased another ten fold. At the market height, the value of a single Semper Augustus bulb reached 10,000 florins – the equivalent of what it cost to buy a house in the middle of Amsterdam at the time.

With time the market peaked and there was no-one left who still wanted to purchase these bulbs at such high prices. Within weeks, the market value crashed and many of people were left in financial ruin.

Throughout history – we have seen similar bubbles develop. As the crowd continues to get more hyped, those contrary voices become less and less popular to be heard. Are any of the recent market bubbles any different? In modern environment of PC speech, are the contrarian voices that stand up for morality, ethics, and honesty any different? Throughout history, these contrarian voices have been demeaned and ignored. But the market for products and the market for principles has a way of eventually correcting itself from the heat of the crowd mentality – and those extremist views tend to have their bubbles burst as the neccessary correction occurs. Today’s market is no different.