The public confidence crisis dejour – throughout time, market segments have followed a crowd mentality. The more heated a market becomes, the more individuals want to buy in, and the higher the prices are pushed up.
This social experience has occured throughout history and the cycles can be observed consistently. Professor G. Watson teaches entrepreneurship and ethics and the role in the market economy. Regardless of whether we want to think about recent finance markets which have Burst, these events are not unique. They have consistently occurred throughout time.
One of the most discussed historical markets that popped was Amsterdam’s Tuplip economy. We can study the Tulipmania of the tulip market that burst in 1637 as a popularly documented historical account of a market that overheated.
Tulips were originally introduced from Turkey in the early 16th century. As new “varieties” of tulips were introduced, competition intensified and their value soared. One apparently rare variety was the Semper Augustus which reached prices in excess of 1,000 florins per single bulb in 1623. This price exceeded more than six times the average annual wage.
This economic mania continued – and ten years later the value had increased another ten times. At the market peak, the price of a single Semper Augustus 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 bulbs at such high prices. Within months, the market value crashed and thousands 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 today’s times of politically correct speech, are the contrarian voices that stand up for character, ethics, and honesty any different? Throughout history, these contrarian voices have been ridiculed 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 politically correct views tend to have their bubbles burst as the inevitable correction occurs. Today’s market is no different.