Industry Bubbles that Pop – Is anything unique Today?
The financial crisis dejour – throughout time, financial markets have experienced a crowd mentality. The more heated a market gets, the more people want to jump in, and the higher the prices are driven.
This mindset has occured throughout history and the cycles can be observed consistently. Professor Watson teaches entrepreneurship and ethics and the role in the market economy. Regardless of whether we want to evaluate recent banking markets which have Broke, these events are not unique. They have routinely occurred throughout time.
One of the most well known 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 industry that overheated.
Tulips were originally brought from Turkey in the early 16th century. As new “varieties” of tulip bulbs were sold, competition intensified and their prices soared. One apparently 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 income.
This economic mania continued – and ten years later the price had risen another ten fold. At the market height, the price of a single Semper Augustus bulb reached 10,000 florins – the value of what it cost to buy a house in central Amsterdam at the time.
With time the market peaked and there was no-one left who still wanted to purchase these bulbs at such high valuations. Within weeks, the market price crashed and thousands of people were left in financial ruin.
Throughout time – we have seen 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 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 ideas has a way of always 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.
Tags: Amsterdam, Augustus, central Amsterdam, character ethics, crowd, crowd mentality, market, price, Professor Watson, time, tulip bulbs, Turkey
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