Industry Bubbles that Break – Is anything different Today?
The public confidence crisis dejour – throughout history, markets have followed a crowd mentality. The more excited a market becomes, the more people want to jump in, and the higher the prices are pushed up.
This bubble has occured throughout history and the cycles can be studied consistently. Professor G. Watson teaches serial entrepreneurs and the role of the market economy. Regardless of whether we want to analyze recent real estate markets which have Broke, these scenarios are not new. They have regularly occurred throughout time.
One of the most reported upon historical markets that burst was Amsterdam’s Tuplip economy. We can analyzie the Tulipmania of the tulip market that burst in 1637 as a popularly reported historical account of a market that overheated.
Tulips were originally introduced from Turkey in the early 16th century. As new “varieties” of tulip bulbs were sold, competition intensified and their value soared. One legitimately rare variety was the Semper Augustus which reached values 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 10 years later the price had increased another ten times. At the market height, the price of a single Semper Augustus tulip bulb reached 10,000 florins – the equivalent of what it cost to buy a house in central Amsterdam at the time.
Eventually the market peaked and there was no-one left who still wanted to purchase these tulips at such high prices. Within months, the market price crashed and thousands of people were left in economic ruin.
Throughout history – we have witnessed similar bubbles reoccur. As the crowd mentality 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 morality, ethics, and honesty any different? Throughout history, these contrarian voices have been ridiculed and ignored. But the market for products and the market for ideas has a way of eventually correcting itself from the heat of the crowd mentality – and those politically correct views tend to have their bubbles burst as the required correction occurs. Today’s market is no different.
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