The crisis dejour – throughout history, market segments have followed a crowd mentality. The more heated a market gets, the more individuals want to invest, and the higher the prices are pushed up.
This bubble has occured throughout history and the cycles can be analyzed consistently. Professor Watson teaches economics and the role in the market economy. Regardless of whether we want to think about recent stock markets which have Pop, these scenarios are not unique. They have consistently occurred throughout history.
One of the most popular historical markets that burst was Amsterdam’s Tuplip economy. 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 imported from Turkey in the early 16th century. As new “varieties” of tulip bulbs were marketed, competition intensified and their prices soared. One legitimately 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 income.
This market mania continued – and 10 years later the value had increased another ten fold. At the market peak, the price of a single Semper Augustus tulip bulb reached 10,000 florins – the value of what it cost to acquire a house in central Amsterdam at the time.
Eventually the market peaked and there was no-one remaining who still wanted to acquire these tulips at such high valuations. Within months, the market price crashed and thousands of people were left in financial ruin.
Throughout time – we have witnessed similar bubbles develop. As the crowd continues to get more excited, those contrary voices become less and less popular to be heard. Are any of the recent market bubbles any different? In today’s times of PC speech, are the contrarian voices that stand up for character, ethics, and honesty any different? Throughout time, these contrarian voices have been ridiculed 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 inevitable correction occurs. Today’s market is no different.