The public confidence crisis dejour – throughout history, markets have experienced a crowd mentality. The more excited a market gets, the more people want to buy in, and the higher the prices are driven.
This social experience has occured throughout history and the cycles can be observed consistently. Professor Watson teaches entrepreneurship and ethics and the role of the market economy. Regardless of whether we want to evaluate recent stock markets which have Burst, these scenarios are not unique. They have routinely occurred throughout history.
One of the most well known historical markets that broke 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 brought from Turkey in the early 16th century. As new “varieties” of tulip bulbs were introduced, 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 income.
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 acquire a house in the middle of Amsterdam at the time.
Eventually the market peaked and there was no-one left who still wanted to acquire these bulbs at such high valuations. Within months, the market value crashed and thousands of people were left in financial ruin.
Throughout history – we have observed 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 modern environment of politically correct speech, are the contrarian voices that stand up for character, ethics, and honesty any different? Throughout time, these contrarian voices have been demeaned 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 inevitable correction occurs. Today’s market is no different.