Stock Market Bubbles should Break – Is anything different Today?
The crisis dejour – throughout time, financial markets have followed a crowd mentality. The more excited a market gets, the more individuals want to jump in, and the higher the prices are pushed up.
This mindset has occured throughout history and the cycles can be studied consistently. Professor Greg Watson teaches ethics and entrepreneurship and the role of the market economy. Regardless of whether we want to think about recent technology markets which have Broke, these scenarios are not new. They have regularly occurred throughout time.
One of the most popular historical markets that popped was Amsterdam’s Tuplip market. We can consider the Tulipmania of the tulip market that burst in 1637 as a popularly reported historical account of a market that overheated.
Tulips were originally imported from Turkey in the early 16th century. As new “varieties” of tulip bulbs were discovered, 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. This price was more than six times the average annual wage.
This market mania continued – and ten years later the value had risen another ten times. At the market peak, the price of a single Semper Augustus tulip bulb reached 10,000 florins – the equivalent of what it cost to acquire 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 bulbs at such high valuations. Within months, the market value crashed and many of people were left in economic ruin.
Throughout history – we have observed similar bubbles reoccur. 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 environment of PC speech, are the contrarian voices that speak up for morality, 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 eventually correcting itself from the heat of the crowd mentality – and those extremist views tend to have their bubbles burst as the required correction occurs. Today’s market is no different.