Economic Bubbles may Break – Is anything different Today?

The financial crisis dejour – throughout history, markets have experienced a crowd mentality. The more excited a market becomes, the more people want to buy in, and the higher the prices are driven.

This mindset has occured throughout history and the cycles can be analyzed consistently. Professor Greg Watson teaches entrepreneurial marketing and the role in the market economy. Regardless of whether we want to analyze recent credit markets which have Broke, these fluctuations are not new. They have consistently occurred throughout time.

One of the most talked about 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 known historical account of a market that overheated.

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

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

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

Throughout time – we have observed similar bubbles develop. As the crowd continues to get more hyped, those contrary views become less and less popular to be heard. Are any of the recent market bubbles any different? In modern times of politically correct speech, are the contrarian voices that speak up for character, ethics, and honesty any different? Throughout time, these contrarian voices have been denigrated and ignored. But the market for products and the market for principles has a way of always correcting itself from the heat of the crowd mentality – and those polar views tend to have their bubbles burst as the required correction occurs. Today’s market is no different.