Economic Bubbles should Burst - Is anything different Today?
The market crisis dejour - throughout history, financial markets have followed a crowd mindset. The more excited a market becomes, the more individuals want to invest, and the higher the prices are pushed up.
This mindset has occured throughout history and the cycles can be analyzed consistently. Professor Watson teaches ethics and entrepreneurship and the role of the market economy. Regardless of whether we want to analyze recent real estate markets which have Broke, these fluctuations are not new. They have routinely occurred throughout time.
One of the most talked about 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 economy that overheated.
Tulips were originally introduced from Turkey in the early 16th century. As new “varieties” of tulip bulbs were discovered, competition intensified and their prices 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 was more than six times the average annual wage.
This economic mania continued - and 10 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 purchase a house in the middle of Amsterdam at the time.
Eventually the market peaked and there was no-one remaining who still wanted to buy these bulbs at such high prices. Within weeks, the market price crashed and thousands of people were left in financial ruin.
Throughout history - we have witnessed similar bubbles reoccur. As the crowd mentality 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 modern environment of PC 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 principles has a way of eventually correcting itself from the heat of the crowd - and those extremist views tend to have their bubbles burst as the neccessary correction occurs. Today’s market is no different.